Hefei Department Store released its 2018 annual report on April 4. In 2018, the company achieved operating income of 10.682 billion yuan, an increase of 2.81% over the previous year, net profit of 225 million yuan, an increase of 5.32% over the previous year, and net profit of 209 million yuan after deducting non-net profit, an increase of 9.18% over the previous year. Basic earnings per share were $0.29, weighted average return on net assets of 6.04%, and net cash flow from operating activities of $693 million. Distribution plan for 2018: Based on a total share capital of 780 million yuan at the end of 2018, it is proposed to distribute 1.5 yuan (tax included) for every 10 shares, with a total dividend of 117 million yuan and a dividend rate of 52.11%. At the same time, the company plans to achieve revenue of 10.7 billion yuan in 2019, which is basically the same as in 2018. Brief reviews and investment recommendations. 1. The company's revenue in 2018 increased by 2.81%, and gross margin decreased by 0.68 percentage points. The company's revenue in 2018 increased by 2.81% to 10.682 billion yuan, and the consolidated gross margin decreased by 0.68 percentage points to 19.49%; by the end of 2018, there were 233 stores, including 26 department stores, 180 supermarkets, and 27 electrical appliances. By business type, (1) department store (including home appliances) revenue fell 0.13% year on year to 6,499 billion yuan, and gross margin fell 0.48 percentage points to 15.43%, of which department store revenue fell 0.93% to 4.879 billion yuan, net profit fell 10.11% to 111 million yuan, floor efficiency was 7814 yuan, 3 new stores were added, new business area was 120,600 square meters, and new revenue was 74.59 million yuan. Tongling Beidou Store, Binhu Xinyue City, and Baiyan Ole Life Plaza opened one after another, and the department store system continued to improve; Net profit fell 2.4% to RMB 1,113 million, net profit fell 2.4% to RMB 21.76 million, turnover was RMB 13,300, 4 new stores were added, business area increased by 83,000 square meters, and revenue increased by RMB 12.28 million. The revenue and net profit of major stores have varied: Gulou commercial revenue fell 1.63% to 947 million yuan, net profit fell 9.92% to 37.15 million yuan; Bengbu department store revenue fell 6.02% to 487 million yuan, net profit fell 10.35% to 20.38 million yuan; commercial building revenue fell 6.27% to 294 million yuan, and net profit fell 21.56% to 11.13 million yuan. The operating profit and net profit of the top 100 shopping centers in Bengbu increased by 623.17% and 533.60% respectively over the previous year. This is mainly due to the optimization of the product structure in 2018, promoting endogenous growth through transformation and cultivating new momentum for continuous growth, which has increased competitiveness and increased profits significantly. (2) Supermarket revenue increased 6.7% to 3,565 billion yuan, gross margin increased by 0.37 percentage points to 19.12%, net profit of supermarket stores decreased by 53.01% to 36.44 million yuan, and turnover efficiency was 7445 yuan. Among them, the operating profit and net profit of Hejiafu supermarkets decreased by 52.11% and 59.07% respectively from the previous year, mainly due to the relocation property rights confirmation income compensated by the Hejia Fuyuan Central Store in Bengbu in 2017. There was no such incident in 2018. The supermarket opened 23 new outlets throughout the year, adding 66,600 square meters of business area and additional revenue of 146 million yuan. (3) Agricultural market revenue increased 7.69% to 304 million yuan, and gross margin increased by 0.32 percentage points to 76.47% year on year. Among them, the Zhougudui agricultural batch market continued to expand, business volume grew steadily, revenue increased 7.78% to 554 million yuan, net profit increased 10.02% to 173 million yuan; Suzhou Top 100 actively exploited potential efficiency, exceeded annual economic targets, and net profit increased by 116.47%; Hejiakang achieved a new breakthrough in logistics distribution, delivery volume and delivery volume maintained double growth, and gross profit increased by 34.58%, self-operated The number of outlets has increased by 41, and coverage continues to expand. (4) Real estate revenue increased by 21.13% to 314 million yuan, and gross margin fell 31.72 percentage points to 52.6% year on year. Among them, Zhougudui Real Estate (100% of Zhou Gudui's agricultural shares) achieved net profit of 77.93 million yuan, an increase of 3.88% over the previous year. 2. The expense ratio for the period increased by 0.54 percentage points, and net profit from the mother increased 5.32% year over year. In 2018, the company's sales expense ratio increased 0.07 percentage points to 4.35% year on year, the management expense ratio increased 0.56 percentage points year on year to 9.64%, and financial expenses of 4.31 million yuan decreased by 9.55 million yuan compared to 2017, mainly due to a decrease in loan interest expenses. In the end, net profit of the mother was 225 million yuan, an increase of 5.32% over the previous year, and after deducting non-net profit of 209 million yuan, an increase of 9.18% over the previous year. 3. Promote business format innovation, promote smart commerce, and omni-channel construction. ① Business format innovation: The company's first comprehensive shopping center, Binhu Xinyue City, and Baiyan Ole Life Plaza, the first luxury discount lifestyle center, opened one after another, further enriching the business system; Hejiafu tried to develop a new model, opened the first fresh food supermarket “Afu Xiansheng”, pioneered the 3.0 version of Xinyue City boutique supermarket, and continuously explored new paths of supermarket industry system development. ② Smart commerce: The department store industry launched a smart business project. There were 142,000 registered users of the applet electronic membership card, with a total of 3.16 million visits, effectively driving store sales. 23 department stores completed ERP upgrades and launches, enhancing the system's ability to support the transformation business; Hejiafu's first unmanned convenience store successfully operated, laying the foundation for unmanned technology applications in offline stores. ③ Omni-channel: Making full use of system resources such as Top 100 Easy Mall, Top 100 Tesco, and Afu Home, etc., some stores carry out mini-program chain marketing, omni-channel development, and achieve joint efforts online and offline. Maintain judgment on the company. ① Benefiting from the regional economy and competitive position, the company continues the characteristics of steady expansion at low cost, diversified business formats, and steady growth in major businesses such as department stores, supermarkets, and agricultural batches, while not ruling out the possibility of speeding up mergers and acquisitions in core business regions; ② The company has formed a rich and reasonable financial equity portfolio, which is contributing to new growth; ③ the company's own property has a high revaluation value and is favored by insurance capital and industrial capital. It is expected that the national reform will break through progress, drive its value return, and achieve transformation, innovation and growth with a better mechanism. Update earnings forecasts. The company's net profit for 2019-2021 is estimated to be 245 million yuan, 269 million yuan, and 297 million yuan, and EPS is 0.31 yuan, 0.34 yuan and 0.38 yuan respectively, up 9.25%, 9.56%, and 10.52% year-on-year respectively. The company's current stock price corresponding to 2019-2021 PE is 19 times, 17 times and 15 times, corresponding to 2019 PS about 0.41 times and PB about 1.13 times. The company is a commercial leader in Anhui, with abundant cash, remarkable asset value, and strong regional competitiveness; considering the profit space that the company may bring by actively experimenting with transformation and innovation, etc., and the opportunities it may face in state-owned assets reform, it can enjoy a certain premium in valuation, giving 19-21 times PE in 2019, corresponding to 0.42-0.47 times PS (at a reasonable level in peer valuation), corresponding to a reasonable value range of 5.98-6.6 yuan, maintaining an investment rating of “superior to the market”. Risk warning: The competitive environment in the Hefei region is becoming fierce; the uncertainty of the store sales confirmation process; and the reform process and plans of state-owned enterprises are uncertain.