Event: On April 26, the company released its 2018 quarterly report, announcing that 2018Q1 achieved operating income of 1,115 million yuan, an increase of 6.32% over the previous year; realized net profit of 38 million yuan, a decrease of 4.69% over the previous year; and realized net profit of 38 million dollars, a decrease of 2.60% over the previous year. The company's gross margin rose to 24.1% in 2018/Q1, and since 2016/Q1, gross margin has risen for 9 consecutive quarters; the sales expense ratio and management expense ratio were +1.2pct, 0.4pct to 16.6% and 2.7%, respectively, and the period fee rate was +1.7pct to 18.8%. Cooperate with Ali to promote the transformation of the main business, and gross margin continues to rise. During the reporting period, the company's supermarkets in Ningbo (including innovative stores) achieved revenue of 813.774 million, a year-on-year decrease of 293,200; Ningbo's small business stores achieved revenue of 53.1293 million, a year-on-year increase of 13.2354 million; supermarkets outside Ningbo (including innovative stores) achieved revenue of 193.84771 million, a year-on-year increase of 40.704 million; and small stores outside Ningbo achieved revenue of 4.4012 million, up 2.772 million. After introducing Ali, the company strengthened strategic cooperation, and the transformation of the main business saw initial results, as reflected in: 1) The supply chain improved markedly, boosting gross profit. The company focused on product reform, product optimization, product development and source procurement under its own brand, accelerated product turnover, and the use of full-process cold chain distribution to reduce product losses, driving the optimization of fresh products categories and a continuous increase in main gross profit. The company's supermarket operating margin during the reporting period was +0.9pct to 20.49% year-on-year; 2) Online channel sales revenue increased steadily. In 2017, online sales revenue was 72.41 million yuan, accounting for 2.01% of main business revenue, an increase of 15.19% over the previous year. 3) Innovate and transform stores. From improving and exploring innovative stores and small-format stores such as Yongjiang stores, safe stores, and neighborhood stores, to using Ali's new retail concept to introduce Seafooda to transform existing stores, the company is continuously optimizing the retail experience and enhancing customer stickiness. The second phase of the employee stock ownership plan boosts employee motivation. The company announced the second draft employee shareholding plan in mid-April. It plans to raise no more than 6 million yuan of capital from no more than 110 employees. The source of shares in the shareholding plan is purchased through the secondary market, and the plan is locked up for 36 months. Following the completion of the company's first employee stock ownership plan in September 2016, this move will further motivate employees and improve the level of corporate governance. Investment advice: The company is the leading local supermarket in Zhejiang Province and is positioned as an affordable supermarket in the community. The main business transformation was promoted after the introduction of Ali. Supply chain improvements, dual line integration, and business format transformation and innovation have begun to bear fruit, and gross margin has increased markedly. Release the second draft of the employee stock ownership plan to increase incentives. The company's EPS for 2018 and 2019 is expected to be 0.29 or 0.33 yuan/share, covering the first time, giving it an “increased holdings - A” rating, with a target price of 21 yuan for 6 months. Risk warning: increased regional competition; cooperation with Ali falls short of expectations; downside risk of CPI.