Company News Since the second half of 2016, the offline retail industry has shown a recovery trend. In December, the sales growth rate of the top 50 retail companies reached 5.1% year on year, which is the highest monthly growth rate since 2014. The recovery trend in the retail sector is expected to trigger a revaluation of the entire industry. Lianhua supermarkets are also expected to benefit from this. Comment The high CPI environment is expected to boost supermarket operators' same-store sales growth. The CICC macro team expects a 2.5% year-on-year increase in CPI in 2017. Synergies with Ego are expected in terms of management and O2O business. Yonghui Supermarkets has transferred all of its 237 million Lianhua supermarket shares (21.17% shares) to Shanghai Yiguo at a price of HK$4.01 per share. We will pay close attention to whether eGuo can help Lianhua implement management reforms and promote O2O business development through its management capabilities and e-commerce capabilities. The valuation is heavily discounted. The current stock price of the company corresponds to 0.1 times the market sales rate in 2016. The company's net cash reached 8.3 billion yuan, 174% higher than its market value. The share transfer price is 33% higher than the company's current stock price. The valuation suggests maintaining the company's “recommended” rating and the target price of HK$4.27. Compared with the current stock price, there is room for improvement of 41%. We expect the company to lose 64.23 million yuan in net profit in 2017, and expect net profit to reach 57.06 million yuan in 2018. Risk reforms have fallen short of expectations.