Event: the company released its annual report for 2017, with revenue of 1.861 billion yuan in 2017, up 0.72% from the same period last year; net profit of 136 million yuan, down 2.57% from the same period last year; and net profit of 119 million yuan, down 5.68% from the same period last year. Of this total, 17Q4 achieved revenue of 477 million yuan, up 6.56% from the same period last year (Q1-Q3 growth rate was-1.27% last year, respectively); net profit from home was 2.3264 million yuan, down 76.56% from the same period last year (Q1-Q3 growth rate was 5.87% 11.22%, respectively 3.61%).

The company received 8.0407 million guests in the whole year, up 4.35% from the same period last year; per capita consumption decreased by 3.97% compared with the same period last year; and the attendance rate decreased by 2.21% over the same period last year. The decline in per capita consumption and lower attendance led to a slight decline in performance.

Revenue from the main catering industry remained stable, while sales in Beijing, the core area, declined slightly. In terms of business, revenue from catering business was 1.35 billion yuan, up 0.30% from the same period last year, accounting for 72.55%. Revenue from commodity sales business was 461 million yuan, up 2.27% from the same period last year, accounting for 24.78%. Revenue from other businesses was 49.6893 million yuan, down 1.87% from the same period last year, accounting for 2.67%. From a regional point of view, Beijing is still the core business area of the company, with revenue of 1.953 billion yuan, down 1.24% from the same period last year, accounting for 104.97% of the company's total revenue. At the same time, the company added new stores in Xi'an, Shaoxing and Zhenjiang, contributing a total of 9.6876 million of revenue, accounting for 0.53% of total revenue.

The gross profit margin has risen steadily, and the annual expense control is reasonable. The company's overall sales gross margin was 61.87%, an increase of 1.03pct over the same period last year. In terms of business, the gross profit margin of catering business was 69.71%, an increase of 1.37pct over the same period last year, and that of commodity sales business was 35.92%, an increase of 0.38pct over the same period last year. From a regional point of view, the gross profit margin in Beijing is 46.40%, an increase of 0.80pct over the same period last year. During the period of the company, the expense rate was 50.96%, an increase of 0.90pct over the same period last year, which remained basically stable. Among them, the sales expense rate was 38.02%, an increase of 1.65pct over the same period last year, mainly due to the increase in labor costs caused by income in new areas; the management expense rate was 12.91%, a decrease of 0.45pct over the same period last year; and the financial expense rate was 0.03%, a decrease of 0.31pct over the same period last year, mainly due to the decrease in handling fees caused by the increase in online payments and the increase in interest caused by the increase in company liquidity.

The store expands steadily, the store subdivides the meticulous management. During the reporting period, the company maintained steady expansion, with 7 new stores and steady national layout; at the same time, the company stepped up research and development, promoted brand segmentation and brand serialization, launched a total of 92 new products and 54 new dish standards in 2017. 11 food standards were revised and 11 new roast duck standards were revised. Deepen the brand management model and promote the "Internet +" strategy. The company actively promotes the upgrading of the existing food industry, and on the basis of the original sales, sets up a brand management center, an e-commerce management center and a logistics distribution center, optimizes the brand image, continues to promote the "Internet +" strategy, and proposes to pay active attention to it.

Investment suggestion: as an established Chinese catering enterprise, the company has steadily expanded its stores and implemented "Internet +" to actively transform itself to comply with the trend of public catering. Based on the company's 17 annual report, due to a year-on-year decline of 2.57%, slightly lower than our previous expectations, the company's 18-19 EPS was downgraded from 0.57 to 0.49, and the current share price is 31X/28X corresponding to PE, respectively, maintaining the "overweight" rating.

Risk Tip: food safety risk, store expansion is not as expected.