The results for the first quarter of 2015 fell short of expectations, and the company's revenue fell 5.0% to 8.465 billion yuan, and net profit fell 48.6% to 50.35 million yuan, lower than market expectations. Gross margin improved, but cost pressure was higher than expected: gross margin improved 0.4 percentage points year over year, mainly due to procurement reforms that increased the share of direct procurement. However, the increase in labor costs led to a 0.5 percent drop in net interest rates. Development trend Weak performance reflects the inefficiency of the original management and operation model, especially in the face of a weak consumer environment and increased competition in the retail industry. The company is in dire need of institutional reform. It is expected that Yonghui supermarket's strategic investment will greatly improve the company's management level and bring scale advantages. We expect Yonghui's leading management level to help the company: 1) Increase gross profit margin through integrated procurement. The total sales volume of the company and Yonghui is expected to reach 66 billion yuan, which is comparable to the sales volume of the second largest supermarket in China. 2) Improve sales efficiency by strengthening employee incentives and fresh product operations; 3) Improve operating profit margins through strict cost control. The valuation and recommendations maintain a “buy with confidence” rating, with a target price of HK$10.2, based on 0.3 times the market sales rate in 2015 (61% discount compared to A-share peers). Short-term results that fall short of expectations may cause stock prices to fluctuate. We are still optimistic about Yonghui's management capabilities and Lianhua's leading scale. It is expected that synergies and operational improvements will gradually be reflected in the second half of 2015. Risk costs have increased more than expected.