The 1H19 performance was lower than our expectations. The company announced 1H19 results: revenue of 5.963 billion yuan, up 6.9% year on year; net profit of 137 million yuan, corresponding to profit per share of 0.175 yuan, down 16.6% year on year, and net profit after deducting non-net profit fell 32.7% year on year, lower than our expectations, mainly due to the decline in macroeconomic downturn and increased competition, leading to a decline in retail profits and investment losses in Huarong Consumer Finance. On a quarterly basis, Q1/Q2 revenue was +9.6%/+3.3% yoy, respectively, and net profit was +5.7%/-66.9% yoy. Development trend 1. Revenue growth has slowed. Revenue for the first half of the year increased 6.9% year over year, and the Q2 revenue growth rate slowed somewhat. By sector: 1) Department stores (including home appliances): revenue ratio -1.35%, mainly affected by increased industry competition and market downturn. In terms of store efficiency, department store/electronics same store revenue was +6.4%/-11.5%; 2) Supermarkets: revenue +5.32%, same store revenue/net profit +1.2%/-3.3%, opening and closing of 2/5 new stores in the first half of the year, and starting franchise development; 3) Agricultural products transactions: +3.47% year-on-year, business expansion led to increased agricultural product circulation 12.2%; 4) Real estate: revenue during the reporting period 346 million yuan, mainly due to the sharp increase in real estate sales of Zhougudui Real Estate Company over the same period last year. 2. Cost control needs to be strengthened. The gross margin for the first half of the year increased by 1.7ppt to 20.3% year on year. We believe it was mainly driven by the high-margin real estate and agricultural products trading business. On the cost side, the sales expense ratio and management expense ratio increased by 0.1ppt/0.1ppt year on year, respectively, and the financial expense ratio increased by 0.2 ppt year on year, mainly due to the increase in loan interest expenses. In addition, investment losses in Huarong Consumer Finance also dragged down profits. The net profit margin fell 0.6ppt to 2.3% year on year, and the net profit margin after deducting non-net profit margin fell 1.0ppt to 1.8% year on year. 3. Pay attention to the progress of state-owned enterprise reform and the improvement of operating efficiency. During the reporting period, the company focused on its core business, and the department store business format focused on promoting digital transformation. 19 stores launched mini-programs, and the number of electronic members increased by 78% during the reporting period; agricultural product circulation expanded new business space, coverage was further expanded, and construction of the Chizhou Top 100 Agricultural Products Logistics Park project progressed steadily; the supermarket business format continued to expand network coverage and accelerate the takeover and operation of the standardized food market. Furthermore, as a regional retail leader controlled by the Hefei State-owned Assets Administration Commission, the company will continue to pay attention to the progress of state-owned enterprise reform and the improvement of operating efficiency. The profit forecast and valuation was lowered by 6%/6% to 0.30/0.32 yuan based on increased competition in the industry. The current stock price corresponds to 2019/2020E15/14xp/E, maintaining an outperforming industry rating. Based on profit forecast adjustments, the target price was lowered by 9% to 6.4 yuan, corresponding to 2019/2020 E22/21xp/E, with room for 41% increase from the current stock price. Risk consumption continues to weaken; industry competition intensifies.