The results for the first quarter of 2019 were in line with expectations Hefei Department Store announced the first quarter results of 2019: operating income of 3,531 million yuan, up 9.58% year on year; net profit to mother of 120 million yuan, up 5.74% year on year, net profit from non-return to mother was 101 million yuan, down 9.48% year on year, corresponding to profit of 0.15 yuan/share per share, which is basically in line with expectations. Development trend 1. The retail industry is booming, and the company's revenue side has accelerated. 1Q19's revenue increased 9.6% year-on-year, up 0.5ppt from 4Q18, and revenue performance picked up, mainly due to the company actively promoting the expansion of new retail stores in 2018, opening 30 new outlets throughout the year, adding nearly 200,000 square meters of business area, while optimizing and adjusting the department store format. Projects such as Binhu Xinyue City and Baiyan Olai Life Plaza opened one after another. We believe that against the backdrop of an increase in the consumer confidence index in Q1 in 2019 and a steady recovery in total social zero, the new stores and new business formats opened by Hefei Department Store in 2018 are expected to contribute significant increases, and the company's revenue side is expected to maintain a rapid growth trend in 2019. 2. The gross margin increased markedly, and the cost ratio decreased during the period. 1Q19's gross margin increased sharply by 2.4ppt to 20.7% year-on-year, mainly due to the company's implementation of a consumer goods chain transformation and upgrading strategy in 2018, actively promoting product supply chain management and digital platform construction, and establishing three major retail centers in central, southern and northern Anhui to further optimize product procurement management and enhance cost control capabilities. In addition, the company's expense ratio decreased by 0.1ppt to 11.7% during the 1Q19 period, with sales/management/finance expense ratios of +0.0pp/ -0.2pp/ +0.1ppt to 3.7%/7.8%/0.15%, respectively. There is still room for improvement in the company's expense control in the future. The company's net interest rate declined slightly by 0.1 ppt to 3.4% due to a sharp increase in income tax rates and minority shareholders' profits and losses. 3. Follow the progress of agricultural product logistics park construction and state-owned enterprise reform. 1) In December 2018, the company announced that it plans to invest 1.28 billion yuan to build the top 100 agricultural products logistics park in Chizhou. The construction period is 3 years, and the transaction volume is expected to reach 6 billion yuan after mature operation. The gradual improvement of the layout of the company's agricultural products logistics park in the province will bring continuous growth to the company's revenue side. 2) As a regional retail leader controlled by the Hefei State-owned Assets Administration Commission, it is expected that with the deepening of state-owned enterprise reform, cost control capabilities and operating efficiency will further improve, promoting a positive profit side. Profit forecast We kept our 2019/20E profit forecast unchanged at 0.32/0.34 yuan. Valuation and recommendations The company's current stock price corresponds to 17/16 times P/E in 2019/20, keeping the recommended rating and target price unchanged at 7.0 yuan, corresponding to 21.8/20.6 times P/E in 2019/20, with 27% room for increase compared to the current stock price. Risk consumption is declining; industry competition is intensifying.