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　　 Changjiang Securities

Event description:

　　 Hefei Department Store Two foreign investment announcements were released, and it is proposed to lease the commercial property of 40000 square meters in Wuhu Baizhuang Times Square project and 28000 square meters in Bengbu Baolong City Square project to operate shopping centers.

Event comment:

We believe that: 1) the company has the strength to operate a small shopping center. The leasing project is located in the complex. The diversified business types provide the company with continuous passenger flow assurance for its stores in different places, further reducing the operating risk of new stores; 2) The company has opened two department stores and more than 30 supermarkets and home appliance outlets in Bengbu. Strengthening the coverage of stores in Bengbu this time will help the company to enhance its brand influence in mature markets and realize the remote replication of successful experience in Hefei market.

We estimate that, 1) Wuhu project's total expense is about 34 million yuan/year (rent free two years before opening), Bengbu project's total expense is about 22 million yuan/year, and the profit and loss balance point efficiency of the two projects is about 4500-5000 yuan/square meter. The low rent cost makes the cultivation pressure of the two stores less; 2) As Wuhu Times Square project is not located in the core business circle, the operation risk is slightly high, but considering rent free in the first two years, the profit and loss balance point of the first two years is about 3000 yuan/square meter, giving the project a certain safety protection period; 3) We expect that the upcoming Bengbu Baolong City Plaza project will add more than 16 million rent and personnel water and electricity costs in 2013.

At present, the company has 6 shopping center projects with a total volume of about 220000 square meters, of which 3 stores are located in the new district and county of Hefei City, and 3 stores are located in the inland cities of Anhui Province. It is expected that the company will open 3-4 new stores in 2013, which will increase the pressure on the company's expense in the short term. However, in the long run, as the regional leader in Anhui Province, the rapid expansion process will help the company fully enjoy the high economic growth and consumption upgrading trend in Anhui Province, and consolidate the brand effect and competitive advantage of the company in Anhui Province. From 2013 to 2014, the company's new stores will gradually go out of the cultivation period, the company's revenue scale will also gradually move towards the 10 billion level, and the company's performance is expected to open a new round of rising space.

We expect the EPS from 2012 to 2014 to be 0.57 yuan, 0.65 yuan and 0.79 yuan, corresponding to the current share price PE of 11 times, 10 times and 8 times. The current valuation has fully reflected the previous pessimistic expectations, with a certain margin of safety, and maintains the "recommended" rating of the company.

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