The investment suggests that we raise Lao Fengxiang's A shares to the recommended rating, and raise the target price by 9% to 52.69 yuan (20 times the price-earnings ratio in 2018), implying 21.8% upward space. The reasons are as follows: steady growth in performance: mid-term revenue increased 13.2% to $22.9 billion, net profit increased 11.4% to $580 million, deducting a 15% increase in non-net profit, in line with expectations. Revenue for the first two quarters increased by 14.2% and 11.9% respectively; net profit increased by 28.8% and decreased by 3.5%, respectively; deducting non-net profit increased by 11.7% and 18.6% respectively (non-recurring profit and loss mainly included government subsidies: 26.62 million yuan in the first quarter and 2.58 million yuan in the second quarter). Channels are steadily expanding, and the development of non-gold products is accelerating: (1) The number of Silver House outlets reached 3,058, with a net opening of 70 stores. Among them, there are 173 self-operated silver houses and counters, 1,339 silver house chain stores, and 1,537 distribution outlets. (2) Among non-gold jewelry products, sales of jadeite, inlay, and K gold jewelry increased by 56.7%, 21.5%, and 79.3% year-on-year. The company plans to establish a subsidiary of inlaid jewelry in cooperation with major suppliers and marketers. Financial review: gross margin fell slightly by 0.1 percentage points to 7.7%, and the sales management expenses ratio decreased by 0.2 percentage points to 2.6%. The company's operating cash flow improved year-on-year to $938 million due to the optimization of inventory and payables turnover. The biggest difference between us and the market? The franchise-oriented business model makes Lao Fengxiang's income relatively stable. At the same time, it is conducive to the expansion of the company's offline channels in the middle and lower tier markets. In the context of consumption upgrades, it helps him seize the dividends of declining channels in third-, fourth-tier cities. Potential catalyst: Further recovery in consumption in the domestic gold and jewelry market. Retail sales of gold, silver, and jewelry in the first 7 months of 2017 increased 7.2% year on year; net profit for the second half of 2016 fell 8.1% year on year. A low base is expected to help increase performance growth in the second half of the year. Profit forecasts and valuations were raised by 1% and 4% to 2.32 yuan and 2.63 yuan per share in 2017/18, up 14.9% and 13.5%. The price of A shares corresponds to 19 times and 16 times the price-earnings ratio of 2017 and 18, and B shares correspond to 11 times and 10 times the price-earnings ratio of 2017 and 18, all of which are cheaper than the valuation levels of Hong Kong jewelry leader Chow Tai ?$#@$, 22 times, 20 times the price-earnings ratio of 2017 and 18. A shares were raised to the recommended rating, raising the target price by 9% to 52.69 yuan (20 times the 2018 price-earnings ratio), implying 21.8% upward space; maintaining the recommended rating of B-shares, raising the target price by 3.5% to $4.68 (12 times the 2018 price-earnings ratio), implying 22% upward space. In 2016, Lao Fengxiang ranked first with a 5.1% share of the jewelry market in mainland China. Against the backdrop of a recovery in the domestic jewelry market, we are optimistic about the company's leading brand influence, product development layout and channel development plans. Risk There is a risk that the price of gold will fluctuate, and terminal consumption continues to be sluggish.