This report is read as follows:

The company is a veteran retail giant based on the mature market of Heliao, Shandong and Henan. In the fierce regional competition, the company improves quality and efficiency, saves expenditure, reduces costs, integrates distribution, upgrades old stores in an orderly manner, and steadily improves its profitability.

Main points of investment:

For the first time, it was given a rating of "prudent overweight". The company is mainly engaged in commercial retail covering department stores, supermarkets, electrical appliances and other formats, and has more than 140 brick-and-mortar stores in the core business circles of Liaoning, Heilongjiang, Henan and Shandong. In recent years, the company has focused on improving efficiency, revenue growth is under pressure, but profitability has still improved. It is estimated that the EPS of the company from 2019 to 2021 will be 3.42 Universe 3.63 Plus 3.87 Yuan. Refer to the industry discount to give the company 8.5x PE in 2019, with a target price of 29 yuan.

Continue to adjust marketing and category structure, improve gross profit margin and efficiency. The company's 2019H1 revenue was 11.77 billion yuan, down 9.49% from the same period last year, but the gross profit margin increased to 26.9% from the same period last year. The company actively implements a unified purchasing channel, eliminates the marketing strategy of negative gross margin and low gross margin, pays more attention to the sales of high gross margin goods, pays attention to sales scale and pursues sales efficiency and quality at the same time. The rate of 2019H1 sales expenses fell 0.48 pct to 6.31% compared with the same period last year. Q2 closed three loss-making stores, the company strictly managed, cut expenses and reduced fees, and its profitability improved slightly when revenue fell.

Carry out the reform of "integrated distribution", upgrade old stores in an orderly manner, and pay attention to the improvement of follow-up profit margins. 2019H1 actively explores and promotes the reform of "integrated distribution", that is, the company unifies the purchase strategy and channels, and its stores are responsible for distribution, changing the past mode of separate and decentralized purchases in stores, which is conducive to the integration of resources, overall management, scale effect, enhance bargaining power and reduce costs. According to the characteristics of the region and consumer groups, the company aims to upgrade some of the company's old stores and upgrade facilities and other "hardware". At the same time, it pays more attention to the transformation and upgrading of "software" such as commodity structure and business ideas. strive to eliminate backward stores, guilt stores, so that old stores coruscate new vitality, become a new performance growth point.

Catalyst: the adjustment of management innovation has entered a mature period, and the gross profit margin has been further improved.

Risk tips: mainly engaged in regional market saturation competition, physical consumption intensified by the impact of e-commerce.