Main points of investment:

The income of 2017Q3 company is 520 million yuan, the net profit of yoy-1.15%; is 56.87 million yuan, and the net profit of yoy-3.61%; is 53.31 million yuan, yoy-9.27%.

Quanju Dedan's revenue in the third quarter was 520 million yuan, a slight decline compared with the same period last year, mainly due to the poor performance of some old stores. There is a mismatch between supply and demand between traditional banquets, modern public leisure meals and characteristic banquets. The company has more than 100 stores across the country, and the transformation takes time.

Net profit from homing is 56.87 million, yoy-3.61%. Where:

1. The gross profit margin has been raised to 0.5pct to 63.8% (which has continued to increase steadily in recent years), and the gross profit has reached 330 million yuan, which remains stable.

2. The expense rate during the period increased by 0.5 pct to 49.1% over the same period last year, mainly due to the increase in sales expense rate.

The sales cost of 2017Q3 is 190 million yuan, and the sales expense rate of yoy+3.86%; is about 36.6%. The promotion of 1.8pct is mainly due to the accelerated pace of opening stores.

As of 2017Q3, Quanjude income end 1.38 billion yuan, yoy-1.14%; return net profit 130 million yuan, yoy+3.09%; deduction non-return net profit 130 million yuan, yoy+0.23%.

Thanks to double-digit growth in the first half of the year, the profit end of 2017Q3 still maintained growth, + 3.1% compared with the same period last year, and kept stable after deducting 130 million yuan in non-return net profit.

The transition will take time and remain optimistic; buy rating, target price 23.10 yuan.

The performance in the third quarter was slightly lower than we expected, mainly due to a slight decline in revenue (a drag on old stores that still need to be transformed) and an increase in sales costs (the transformation strategy is determined and the pace of new stores is accelerated), so despite the temporary lacklustre performance, we remain optimistic.

We judge that the net profit of the company from 2017 to 2019 is 1.44,1.78 and 192 million yuan respectively. Based on the total share capital of 308 million shares, the value of each share is 0.47, 0.58 and 0.62 yuan. With reference to historical valuations (almost all over 40 times PE in the past 3 years) and industry valuations (Xi'an Food only), the company was given a buy rating of 40 times PE in 2018, corresponding to the target price of 23.10 yuan.

Risk hint. The transition takes too long; food safety risks.