The first half of the year is in line with expectations.
Lianhua supermarket announced the company's results in the first half of 2017: the company's revenue reached 13.2 billion yuan, down 6.0% from the same period last year; the company's net profit was-4.8 million yuan, down 263.7% from the same period last year, corresponding to earnings per share of-0.004 yuan. The company's results in the first half of 2017 were in line with previous profit expectations.
Same-store sales grew by-3.8% in the first half of the year (compared with-1.2% in 2016), mainly due to increased competition in online and offline areas and the early Spring Festival holiday this year.
The company's operating margin remained at 1.2 per cent, but minority shareholders' interests rose 14 per cent year-on-year, mainly due to the increase in profits of non-wholly-owned subsidiaries in Zhejiang province.
Trend of development
We expect the growth rate of same-store sales to increase in the second half of 2017, mainly due to the gradual increase in CPI. According to the CICC Macro team, CPI is expected to reach 1.9%, 2.2% and 2.6% respectively in the third quarter of this year, the fourth quarter of 2017 and 2018.
The company's operation and the O2O plate are expected to have a synergistic effect with BABA, as BABA has become the company's second largest shareholder.
Valuations are attractive. The company's current share price corresponds to 0.1 times the 2017 price-to-sales ratio. The company currently holds 5.8 billion yuan in net cash, 89% higher than the current market capitalization.
Profit forecast
Considering the weak growth of same-store sales, we cut our earnings per share forecast for 2017 from-0.06 yuan to-0.31 yuan and from 0.06 yuan to-0.07 yuan by 224%.
Valuation and suggestion
At present, the company's share price corresponds to 0.1 times the 2017 price-to-sales ratio. We maintain the company's "recommended" rating, but cut the company's target price by 9.33% to HK $4.18, which is 32.7% higher than the current share price. The target price is based on 0.16 times the 2017 price-to-sales ratio.
Risk.
The reform fell short of expectations.