Matters: Wenfeng Co., Ltd. released its 2014 three-quarter report today. The first three quarters achieved revenue of 5.794 billion yuan, a year-on-year increase of 9.05%; net profit of 325 million yuan or EPS = 0.44 yuan, a year-on-year increase of 22.73%; net profit of 325 million yuan or EPS = 0.44 yuan, an increase of 26.66% over the previous year after deduction. The performance is in line with our expectations. Ping An's view: Retail is far better than the industry average, and real estate settlement contributes to growth. In the first three quarters of this year, the company achieved revenue of 5.794 billion yuan, an increase of 9.05% over the previous year, better than the industry average of -2.69%. Judging from the single-quarter data for the third quarter, operating income was 1,681 billion yuan, an increase of 8.81%. In a situation where the industry is relatively sluggish, this increase in revenue cannot be appreciated. The main reason is that most of the company's stores are located in third- and fourth-tier cities, and the impact of e-commerce is limited. Residents' shopping habits are still relatively traditional, and their dependence on traditional department stores is high. In addition, the company is based on deep local cultivation and careful cultivation, and is supported by the “Love Fumifeng” online shopping platform to enhance its ability to attract customers. Newly opened stores in Rugao, Lianyungang, and Nantong have also contributed considerable epitaxial growth. We estimate that real estate settlement revenue of more than 200 million yuan in the third quarter contributed to an increase in revenue growth. The company's increased voice in negotiations with suppliers led to a year-on-year increase of 1.83 percentage points to 18.6% in gross margin levels. Property advantages underpin performance growth. Since this year, Xinye has opened many stores such as Wenfeng in Rugao Changjiang and Wenfeng in Xugou, Lianyungang, etc., and the cost of cultivating new stores has increased. However, in 3Q2014, the company's cumulative sales+management expenses accounted for only 8.96% of revenue, far below the industry average of 14.20%. On the one hand, since most of the company's stores are located in third- and fourth-tier cities, the company has outstanding ability to acquire properties and the cost of land acquisition is low; on the other hand, personnel costs are relatively low, and meticulous management enhances profit margins. The company has abundant cash flow, no long-term liabilities, and a light financial burden. Financial expenses accounted for -0.33% of revenue, down 0.64 percentage points year over year. The first three quarters achieved a total net profit of 325 million yuan, a year-on-year increase of 22.73%. The corresponding net interest rate was 5.58%, up from 0.61 percentage points in the same period last year. With the batch settlement of real estate projects at the end of the year, we are optimistic about the company's future performance growth rate. Maintain 14-16 EPS = 0.56/0.61/0.68 yuan, “neutral” rating. Due to the low level of prosperity in the industry, we believe that it is difficult for the company to break through in its main business in supermarkets. Based in third- and fourth-tier cities, the impact of e-commerce is limited, and the revenue situation is better than the average for the same industry. Settlement of Wenfeng City Plaza and Rugao Yangtze River Complex during the year is expected to significantly boost net profit. Maintain the 14/15/16 EPS forecast of 0.56/0.61/0.68 yuan, the current price corresponding to PE = 15.2X/14.0X/12.5X, and maintain the “neutral” rating. Risk warning: economic downturn, performance falling short of expectations, lengthening of the incubation period for new stores, e-commerce shocks, increased regional competition, etc.