The investment proposal takes into account the weak performance in the first half of 2016. We moved Lianhua supermarket away from convinced purchases: the same store sales growth rate in the first half of 2016 improved to 0.7% from -6.5% in FY15. The main driving force came from the convenience store business (same-store sales growth rate of 18.9%). However, the convenience store business is still losing money due to high labor costs. Operating profit remained stable at 173 million yuan, but net profit attributable to the parent company fell 86% to 2.94 million yuan. We expect that the main reason is the increase in profits in the Zhejiang region in the first half of 2016 (74.19% of the company), but losses in other regions have increased. Reason: However, we are still optimistic about the long-term potential of Lianhua supermarkets: the valuation is highly discounted. Lianhua supermarket is currently trading 0.1 times its market sales rate in 2016, far lower than 0.4 times that of its peers. The company currently has a net cash of 8.3 billion yuan, which is 161% higher than the market value. Operational reforms are progressing steadily. Lianhua supermarket is actively implementing a series of reform measures, including: 1) Beginning joint operation of loss-making stores with Yonghui supermarkets in some regions; with Yonghui supermarket's supply chain and bargaining power in these regions, the company expects loss-making stores to reduce losses. 2) Increase fresh products to attract offline traffic. Profit Forecast and Valuation We lowered our 2016/17 profit forecast from $15.91 million and $25.68 million to -$216 million and -63.54 million yuan. The target price was lowered by 15% to HK$4.27, based on 0.15 times the 2016 market sales rate. The Lianhua supermarket was removed and bought with confidence, but the recommended rating was maintained. Risk spending has declined further; costs have risen.