Investment points The leading Chinese middle and high-end restaurant chain industry is calculated by the number of directly managed stores. The company is the largest high-end Chinese restaurant chain enterprise in China. The company has three brands, namely the dining brand “Shanghai Xiaonanguo,” which targets the household and business consumer groups, the dining brand “Hui Gongguan,” which targets the business consumer group, and the casual dining brand “Nan Xiaoguan,” which targets the household consumer group. Among them, the “Shanghai Xiaonanguo” brand has contributed most of the current revenue and cash flow. The company's ability to withstand crises is superior to that of peer companies in the middle and high-end catering industry, which is facing the double impact of a sharp decline in business consumption and rising operating costs. The company's brand advantages, positioning transformation, and marketing capabilities make it more capable of resisting crises. The company's same-store traffic in the first half of 2013 was basically the same as last year, while same-store sales fell by about 7%, and the business situation was better than that of competitors in the same industry. We believe that after the crisis, the company will be able to gain market share left over from competitors' exit. “Nan Xiao Guan” is expected to become the driving force for the company's future performance, and the casual restaurant brand “Nan Xiao Guan” recorded good results with a turnover rate of about 5.5 times in Hong Kong last year, and expanded to mainland China in July this year. The upfront investment of the “South Little House” store was only about 40% of that of the “Shanghai Xiaonanguo” store, while the former's average efficiency was about 3.5 times that of the latter. The expected net profit margin of the “South House” brand is 10-12%, close to Cuihua Holdings (1314.HK) and significantly higher than “Shanghai Xiaonanguo”. We expect the “South Pavilion” revenue share to rise rapidly from 1.5% in 2012 to 14.7% in 2015. 2014 is the inflection point of the company's SG&A fee rate. We believe that the company's performance in 2013 will face greater pressure, and the increase in expenses will be faster than the increase in sales, causing the SG&A fee rate to increase by 2 percentage points to 61.7% compared to 2012. In the future, the SG&A fee rate will decline with the increase in operating efficiency, thus driving the company's net profit level to gradually return to a normal level of 8-10%. Finance and valuation We expect the company's earnings per share for 2013-2015 to be RMB 0.06, 0.08, and $0.11, respectively. Referring to the 2013 average PE of the Hong Kong stock and catering industry, we gave the company 20 times PE in 2013. The target price is RMB 1.21 and HK$1.52, giving the company an “increase in holdings” rating for the first time. Risk warning: The performance of the first half of 2013 declined significantly; the promotion of the “Nanxioguan” brand in mainland China was poor; raw material prices rose sharply