Expected net loss for the first nine months of 2015 Lianhua announced that it expects a net loss for the first nine months of 2015 and achieved a net profit of 51 million yuan in the same period last year. Key points of focus: Poor performance reflects the difficult situation in the supermarket industry, mainly due to the weak consumption environment, the decline in prepaid cards, and the impact of e-commerce. This trend continued in the 3rd quarter of 2015. However, we still have a positive attitude about Lianhua's reform potential, especially after the change of general manager. The severe industry environment and poor performance prove that Lianhua's traditional operating methods and business models do not adapt to the development of the “new normal” and require structural reforms. After Yonghui invested, the market was still worried that Yonghui would not be able to help Lianhua carry out system reforms. However, in the interim report, the company announced that Mr. Lin Song (former Yonghui executive) has been appointed as the new general manager of Lianhua to replace Hua Guoping. We believe that this change is an important sign that Lianhua has begun reforms. Furthermore, the introduction of a general program for state-owned enterprise reform will also speed up the pace of corporate reform. The current valuation is attractive. Lianhua corresponds to 0.1x P/S in 2015, while similar A-share companies correspond to 0.3 to 0.9x 2015 P/S. Valuation and recommendations We lowered our 2015/16 profit from $12,00/54 million to -$555/12 million. The target price was lowered by 10.7% to HK$7.3 (based on 0.25x 2015e P/S) to maintain confidence in buying. Small-scale profits and small-scale losses won't make a significant difference, but reform or failure will make a huge difference. Risk reforms fall short of expectations; e-commerce development.