Summary:

The company announced an advance annual performance increase announcement for 2017. The company's net profit for 2017 is expected to be 232-273 million yuan, an increase of 130%-170% over the previous year, mainly due to the significant increase in main business revenue of the “Lanzhou International Trade Center Project” and the “Fu'an Andong Bai Plaza Project” compared to the same period last year, which led to an increase in net profit attributable to shareholders of listed companies.

The company has 6 stores in Fujian. Two of the main stores are owned properties, and the continuous appreciation of owned properties provides the company with a high margin of safety. Furthermore, in June 2017, Dongbai Group initiated the largest store restructuring in 60 years. At present, all of its stores have been “converted into shopping centers”. The completed Dongbai Center has location advantages, scale advantages, and transportation advantages close to subway stations, and operating income is expected to gradually recover.

Since the company officially transformed logistics real estate in 2016, the company has now launched 6 projects, with a total construction area of 770,000 square meters. The projects are distributed in the four cities of Foshan, Zhaoqing, Beijing and Tianjin, forming a networked layout. With economic growth, consumption upgrades, and the explosive development of e-commerce, demand for modern warehousing and logistics facilities has increased, and I am optimistic about the company's ability to advance in the logistics real estate field.

Profit forecast: The company is taking a two-pronged approach. On the one hand, it has increased its business format adjustments to traditional department stores to achieve positive changes towards shopping centers, and on the other hand, it is actively transforming logistics real estate. Currently, the cost of land acquisition in second-tier and third-tier cities is relatively low, and the company quickly took over land for strategic reserves.

We forecast the company's 2017-2019 EPS to be 0.26 yuan, 0.31 yuan, and 0.34 yuan respectively, covering the first time that the company was given an “increase in holdings” rating.

Risk warning: 1) The progress of logistics projects fell short of expectations; 2) The overall competitive pattern of the industry intensified.