This report is read as follows:

Competition in the catering industry intensifies the provision for impairment of goodwill, resulting in a decline in revenue and performance, and brand operation and expansion will be strengthened in the future.

Main points of investment:

Lower the target price to 15.7 yuan to maintain the overweight rating. Competition in the catering industry intensified, lowered the 2019 performance forecast, 2019-2021 EPS of 0.27 (- 0.30) / 0.29 / 0.32, the expansion rate was lower than expected, lowered the target price to 15.70 (- 11.04) yuan, due to the expected 2019 profit absolute value is small, resulting in the target price corresponding to 2019 58Xpe dynamic P / E ratio valuation is higher, the valuation premium comes from the value of time-honored brands, maintain the overweight rating.

Performance summary: 2018 revenue 1.777 billion /-4.48%, net profit 73.0422 million /-46.29%, deducting non-net profit 57.161 million /-52.14%. EPS0.24 yuan.

Intensified competition in the catering industry has led to a decline in revenue and performance, and store replication and incubation has been promoted in an orderly manner: 1 the competition in the catering industry intensified, receiving 7.7047 million guests /-4.18% in 2018, and the company set aside 25.5 million of the impairment of goodwill at the end of the year. as a result, the company's operating income and profit level declined compared with the same period last year. In 22018, 3 new direct stores and 5 new franchise stores were opened.

(3) strengthening marketing brings about an increase in the rate of expenses during the period. In 2018, the gross profit margin is 60.03% (- 1.84pct), and the expense rate during the period is 53.41% / + 2.44pct, of which the sales expense rate is 41.17% (+ 3.15pct), the management expense rate is 12.35% (- 0.56pct), and the financial expense rate is-0.11% (- 0.15pct).

Synchronously strengthen brand operation and brand development. In 2019, we will pilot to create at least one classic boutique with good image and reputation. The layout of key areas will be accelerated, and a new version of Quanjude stores will be opened in Universal Studios and Daxing New Airport, and the bidding for the project has been completed; according to the "Quanjude complex store opening model" to promote the replication plan, 340 such stores are expected to be opened in 2019.

Risk factors: food safety risk, new stores are not as expected.