This report is read as follows:

The company takes root in Fujian with department stores, supermarkets and sports retail, continues to test the waters of new retail to tap commercial potential, focuses on cleaning up 48 stores in the first half of the year, streamlines the layout of short-term performance pains, and looks forward to the follow-up development.

Main points of investment:

Cover for the first time, give cautious overweight rating. The company deeply ploughs commercial retail in Fujian area, covering supermarkets, department stores and sports retail, with 95 stores, including 83 supermarkets, 6 department stores and 6 sports stores. Company 2019H1 focus on 48 stores (mainly supermarkets), short-term performance pain, waiting for adjustment in place for follow-up development. It is estimated that the company's EPS in 2019-2021 will be-0.16 PS 0.07, 0.13 yuan. With reference to the industry, it will give the company a valuation of 0.6 times in 2019, with a target price of 5.50 yuan.

Focus on adjusting the store structure to build up strength for subsequent growth. 2019H1 realized revenue of 3.002 billion yuan, down 12.40% from the same period last year, and its net profit was-121 million yuan, compared with 7 million yuan in the same period last year, turning a loss over the same period last year. Mainly due to the company's closure of 48 stores (including 44 supermarkets) caused by compensation losses, decoration long amortization balance one-time amortization loss and other effects of about 161 million yuan, the expense rate reached 25.4%, an increase of 4.3pct compared with H1 in 2018. Since 2019, the company has improved its business performance by adjusting the loss-making and hopeless stores and disposing of the loss-making business.

Try the new retail, adjust and then start. Company 2019H1 online third-party platform GMV5.02 billion, over the years continue to tap the potential of e-commerce business. New Huadu teamed up with BABA in 2017 to develop a new retail business, and jointly set up Fujian New Box Network Technology. 50% of the shares held by Fujian New Box increased losses in 2018H1. In September 2018, the company transferred its 40.5% stake. In June 2019, Xinhua transferred its 51% stake in the new retail brand "Haiwu Club" for 1 yuan. The new retail is still in the trial and error stage of various models, and the initial training cost is relatively high. The company will adjust in time and wait for the follow-up new development.

Catalyst: store optimization "subtraction" is effective, new business type's new development

Risk hint: the competition in the regional retail market is fierce, and the new retail loss is increasing.