Judging from the business situation, Lianhua's performance so far has not been good. Since the beginning of the year, Lianhua's same-store sales growth has been about negative units. The number of stores that the company closed during the same period was about “dozens”. Overall, the decline in customer traffic has put pressure on sales, and we don't expect Lianhua's same-store growth to improve significantly in the second half of the year, despite expectations that CPI will rise and consumer sentiment will improve. Lianhua is working to resolve its structural problems, but it will take time to see results. Some of Lianhua's structural factors will continue to have a negative impact on profit margins. In fact, the company knows the crux and is beginning to shift its growth focus from scale to efficiency and profit margins. However, structural problems will still exist in the short term, and management's efforts will take time to show results on the retail side. Maintain an investment rating of “neutral” based on current valuation levels. The company's stock price has fluctuated over the past 12 months. Closing 0.92 times 13—16 PEG, we think the company's current valuation is fair. It is estimated that the basic earnings per share for FY14 to 16 will be RMB 0.115, 0.187 and RMB 0.253, respectively. The target price of HK$4.54 corresponds to 1.0 times PEG from 13 to FY16.