Comments:

Results have been achieved in reducing costs and increasing efficiency, and profit margins have increased: as of June 30, 2018, the company recorded revenue of 13.08 billion yuan in the first half of 2018, down 1.2% from the same period last year. Gross profit was 1.89 billion yuan, down 6% from the same period last year. The gross profit margin in the first half of the year was 14.4%, down 0.7 pct from the same period last year; the comprehensive rate of return was 24.8%, down 0.5 pct from the same period last year; and the operating profit margin was 1.6%, up 0.4pct from the same period last year. The company's sales expense rate fell 0.9pct compared with the same period last year, so that the operating profit margin rose 0.4pct compared with the same period last year, and the net profit turned into profit.

The turnover of 2018H1 large-scale comprehensive super, standard super and convenience stores increased by-4.3%, 4.8% and 0.7% respectively over the same period last year. The company's turnover rebounded in the form of supermarkets.

The company's physical transformation has achieved certain results, online and offline integration, which has significantly increased the company's same-store sales, coupled with the company's efforts to build a differentiated supply chain, including measures to enhance the negotiation ability with suppliers, improve service revenue, continue to optimize the procurement of fresh sources, develop fresh bases, reduce costs and increase efficiency, cost control and other measures, the help effect on the efficiency and operation of the company is slowly released.

Lianhua same-store sales increased by 1.2% year-on-year, including large general supermarkets with YOY+0.19%, supermarkets and YOY+3.92%, convenience stores with YOY-1.96%. The company continues to adjust and optimize the network structure, close some loss-making outlets, and improve the growth efficiency of the same store. Large-scale comprehensive super, supermarket same-store growth rebounded significantly, supermarket same-store growth of nearly 4% in the first half of the year, from negative to positive inflection point began to show.

In terms of gross profit margin and comprehensive rate of return, the decline in gross profit margin and standard excess is mainly due to the impact of fresh improvement on the proportion of the company's portfolio return, and the company will continue to improve the promotion and operational efficiency of the fresh department of the store. The increase in operating profit margin of comprehensive and standard excess shows that phased results have been achieved in reducing costs and increasing efficiency and optimizing supply chain management. The operating interest rate of convenience stores is still low, and the profits of convenience stores are squeezed by fierce competition, rental costs, administrative costs and sales costs. the company will continue to adjust the structure of convenience stores, optimize products, speed up the introduction of new products and hot-selling products and explore new marketing models.

Risk tips: 1, macroeconomic fluctuations; 2, online retail impact; 3, weak consumer demand