The company released the 2017 mid-year report that the net profit of homing decreased by 13.88% compared with the same period last year. On the evening of August 28, the company announced that 1H2017 realized operating income of 836 million yuan, an increase of 8.87% over the same period last year, and realized net profit of 19 million yuan, equivalent to 0.23 yuan of fully diluted EPS, a decrease of 13.88% over the same period last year. The net profit of non-homing was deducted by 18 million yuan, which was 13.24% lower than expected. Judging from the split in a single quarter, the company's 2Q2017 achieved operating income of 356 million yuan, an increase of 10.87% over the same period last year, which was greater than the 7.43% growth of 1Q2017. The net profit returned to the mother was 11 million yuan, a decrease of 16.06% over the same period last year, which was greater than the 10.66% decline in 1Q2017. From the perspective of the company's main business income, department stores / supermarkets / home appliances reached 2.26 / 418 million yuan respectively, an increase of 2.4% / 8.64% respectively over the same period last year.

The comprehensive gross margin decreased by 0.67 percentage points, and the expense rate decreased by 0.44 percentage points during the period.

1H2017's consolidated gross profit margin was 20.38%, down 0.67% from the same period last year. In terms of business format, the gross profit margin of department stores / supermarkets / home appliances is 17.48% / 17.26% respectively 17.42%, with year-on-year changes of-4.96% /-0.16% 1.54% respectively. The expense rate during the period was 16.22%, a decrease of 0.44 percentage points over the same period last year, of which the sales / management / financial expense rate was 12.61% / 2.53% / 1.08% respectively, representing a change of 0.61 /-0.15 /-0.90 percentage points over the same period last year.

Layout of third-and fourth-tier cities and rural markets in central Anhui, self-management model to ensure competitiveness

The company is based in Lujiang County and continues to expand in the central part of Anhui Province. By the end of June 2017, the company had 44 stores in Anhui, including 5 shopping centers, mainly distributed in Lujiang, Chaohu, Hexian, Wuwei, Hanshan and other counties and towns under their jurisdiction, with a total business area of 141900 square meters. A new shopping mall and a supermarket store are expected to open in October. The proportion of self-management of the company is more than 85%, which is conducive to ensuring the quality of goods, lowering prices and enhancing market competitiveness. However, as the company's stores are concentrated in the third-and fourth-tier cities and rural markets in central Anhui, it is difficult for the company's business income to grow significantly.

Adjust profit forecast and maintain neutral rating

Based on the report, we downgrade our forecast for the company's fully diluted EPS for 2017-2019 to 0.46, 0.50 and 0.52 yuan respectively (previously 0.51 / 0.52 / 0.53), maintaining a "neutral" rating.

Risk Tips:

The growth rate of CPI is not as expected to suppress the performance of supermarkets, and the growth rate of consumer demand is not as expected.