The 1H18 performance slightly exceeded expectations, and Lao Fengxiang announced 1H18 results: operating income of 25.25 billion yuan, up 10.3% year on year; net profit of 650 million yuan, up 11.6% year on year, corresponding to earnings of 1.24 yuan per share. Results slightly exceeded expectations (we expect revenue growth of 8% and net profit growth of 7% in the first half of the year). Among them, revenue in 2Q18 increased 12% in a single quarter, net profit increased by 16.3%, and the growth rate increased compared to 1Q18. Revenue splitting: (1) Jewelry revenue increased about 10% year over year to $25 billion. (2) As of the end of June 2018, there were 3,278 bank outlets nationwide, a net increase of 104 over the beginning of the year. Among them, there are 160 self-operated banks and counters, 1,471 silver house chain stores, and 1,633 distribution outlets. The company has opened 11 and 14 banks in Hong Kong and 14 overseas respectively. Production base: Dongguan mosaic production base 2H17 began operation. Currently, production capacity is gradually increasing, and 1H18 has achieved profit of 3.03 million yuan; during the reporting period, the shipment volume of the Dongguan Sujin production base increased 9.6% year-on-year, achieving net profit of 26.04 million yuan. Financial review: The gross margin increased slightly by 0.1ppt to 7.8% year on year, and the sales and management expenses ratio was 2.6%, the same as the previous year. Cash flow from operating activities increased 24% to $1.16 billion during the period, and inventory turnover days were shortened by 4 days to 54 days over the same period. Development trend (1) The company has received a total of US$200 million in loans from 8 overseas banks, which will be used to promote the opening of retail stores in Hong Kong. (2) The company is on the “double hundred” list of state-owned enterprise reform. In August, the employee shareholding association and natural persons plan to transfer a total of 22% of the shares held by Lao Fengxiang Co., Ltd. to Guoxin Holdings, a central enterprise in Shanghai, to Guoxin Holdings. It is expected that in the future, the governance structure will be optimized and the level of management will be improved. (3) From January to July 2018, total retail sales of consumer goods above the limit nationwide increased by 7.3% year-on-year (5.7% in a single month in July). Among them, retail sales of gold and silver jewelry increased 7.5% year-on-year (8.2% increase in July in a single month). The recovery of the industry is yet to be seen. Profit forecasts for 2018 and 2019 remain unchanged at $2.51 and $2.86. 2018/19e net profit per share is expected to increase 15.6%/13.9% year over year. The valuation and current stock price of A shares of the proposed company corresponds to 13 times /11 times P/E in 2018/19, and B shares correspond to 8 times/7 times P/E in 2018/19. Maintain the recommended rating for A/B shares and the target price for A shares of 42.89 yuan (corresponding to 15 times P/E in 2019, implying 34% upward space) and the target price for B shares of $4.06 (corresponding to 9 times P/E in 2019, implying 32% upside). I am still optimistic about the company's leading brand share and penetration into the middle and lower tier markets under the franchise model. There is a risk that risk gold prices will fluctuate, and terminal consumption will continue to be sluggish.