Investment Highlights On August 14, Quanjude released its 2017 semi-annual report. The company's operating income during the reporting period was 864 million yuan, down 1.14% year on year; net profit after deduction of shareholders not attributable to listed companies was 75 million yuan, an increase of 8.29%; and net cash flow from operating activities improved significantly, up 18.45% year on year to 88 million yuan. The company's current EPS is 0.249 yuan/share, up 8.69% year on year. The company continues to carry out store layout, stable operating income, and e-commerce sales and marketing activities are highlights. In the first half of 2017, the company opened 2 new direct-run enterprises and 1 franchise store. As of June 30, 2017, the company has opened a total of 114 member companies. The company achieved revenue of 864 million yuan in 2017 H1, a year-on-year decrease of 1.14%. Among them, e-commerce business centers delivered a total of 23.2 million yuan, an increase of 40% over the previous year. In the first half of the year, the company organized a total of 33 themed marketing activities, including 21 member marketing activities. A total of 19 days of holiday catering revenue reached 1154.274 million yuan, an increase of 5.82% over the previous year. The company coordinates the development of food products and controls costs. Operating costs have decreased year over year, and gross margin has increased. During the reporting period, the company's imitation food company focused on coordinating new product research and development on the one hand, and speeding up the development of community marketing and sales channels on the other. The Faux Meal Management Center, on the other hand, adjusted confectionery products into two major categories: “auspicious gifts” and “elegant lifestyle”, streamlining packaging to control costs. The company's operating costs during the reporting period were 323 million yuan, down 8.21% year on year; gross margin of catering and product sales was 66.48%/44.67%, respectively, up 2.81%/2.83% year on year. The company's operating income remains stable, operating costs are well controlled, and net profit has increased. During the reporting period, the company's management expenses were 120 million yuan and sales expenses were 316 million yuan, up 5.79%/8.24% year on year, respectively, due to the opening of new stores and new product promotion; financial expenses fell 69.93% year over year to 210 million yuan, due to the increase in the company's business Internet payments volume. The overall increase in expenses for the period did not affect the increase in the company's net profit due to control of operating costs. The company achieved net profit and deducted non-net profit of 768/750 million yuan during the reporting period, an increase of 8.68%/8.29% over the previous year. Profit forecast and risk rating: As a famous catering brand, the company will continue to promote the layout of the catering industry. We are optimistic about the continued improvement in the company's store business conditions and growth space after the reform of the food management system. We expect the EPS from 2017 to 2019 to be 0.51/0.57/0.68 yuan respectively, corresponding to the current stock price PE of 38/34/28 times, maintaining the “increase in holdings” rating. Risk warning: The restaurant industry is fiercely competitive, and the company's cost side is not well controlled.