Net profit for 2019 is forecast to fall by 22.57% year on year, exceeding expectations. Youa Co., Ltd. released the 2019 performance forecast. The company expects full-year revenue of 6.319 billion yuan, a decrease of 12.75%; net profit of 351 million yuan, a decrease of 22.57%, corresponding to earnings per share of 0.25 yuan, which is better than our expectations, mainly due to large fluctuations in minority shareholders' profit and loss. On a quarterly basis, 2019 Q1/Q2/Q3/Q4 revenue was -27.6%/-8.8%/-7.7%/-1.6%, respectively, and net profit was -38%/-31.9%/-29.5%/173.4%, respectively. Among them, Q4 net profit increased significantly year-on-year, mainly due to losses in the same period last year, and the base was low. Focus 1. Revenue is being dragged down by retail pressure and real estate business confirmation fluctuations. The company's revenue forecast for 2019 is down 12.75% year over year. By business, ① retail business: revenue fell 8.58% year on year due to increased market competition and adjustments to the closure of Youa Chuntian's Changsha store; ② Real estate business: The May Day Plaza project confirmed revenue in the same period last year. There was no such revenue in the current period. At the same time, revenue from the Shaoyang Youa International Plaza project decreased, causing real estate revenue to drop 70.74% year on year. 2. The financial expense ratio has risen, and profitability has declined. We forecast that the company's financial expenses ratio in 2019 will increase by 1ppt to 3.00% compared to the same period last year, mainly due to the increase in the company's loans and the cost of interest expenses for completed delivery of development projects. Furthermore, the company predicts that credit impairment losses in 2019 will decrease by 80.76% year-on-year, mainly due to subsidiaries adjusting loan evaluation criteria in the same period last year, and the estimated credit impairment loss base is high. We forecast that the company's operating profit margin for the same period will decrease by 1.4ppt to 5.6% year on year, and net profit will decrease by 0.7ppt to 5.6%. 3. Accelerate the diversified retail layout. Competition in the retail industry has intensified, and new retail changes have intensified the elimination of traditional business formats. In response, the company is actively seeking changes: ① Traditional department stores: the company promotes the transformation of major shopping center stores to urban outlets and opens up self-employment channels for European brands in terms of supply chain; ② Convenience stores: The company plans to launch 7-Eleven convenience stores in Hunan Province. The company expects to launch the first 7-Eleven convenience store business in Hunan Province. The company expects to launch a total of 10/ 25/ 55 stores by the end of 2020/2021/2022, achieving co-driving growth between department stores, Ole and convenience stores. Follow-up attention will be paid to the implementation and results of the company's diversified retail business layout. Valuation and recommendations In view of the large fluctuations in the profit and loss of the company's minority shareholders in 2019, 2019 earnings per share were raised 20% to 0.25 yuan. Considering the impact of the epidemic on the offline retail industry, the 2020 profit forecast was lowered by 3% to 0.22 yuan, and the 2021 profit forecast of 0.23 yuan per share was introduced. The current stock price corresponds to 2020e 15xP/E, maintaining an outperforming industry rating, and lowering the target price by 7% to 4.2 yuan, corresponding to 2020e 19xP/E, with room for 30% increase. Competition in risk regions has intensified, consumption continues to be sluggish, and the performance of new stores falls short of expectations.