China Food Retailing:New retail shaping up,observed from store visits and channel checks

New business formats have become a new driver for food retailers。

    SSSg momentum in 3Q was in line with that in 1H17for major food retailers,based on our channel checks. Better-than-expected 1H17results gave us moreconfidence in GPM expansion and operating leverage for efficient players. Newretail formats, including O2O and “dining + supermarket”, could be newgrowth drivers. For Sun Art, B2B and O2O contribute both SSSg and OP.Yonghui’s supply chain advantage should continue to secure core competencyin the fresh food area. Its partnership organization could deliver betteroperating leverage, in our view. We thus reiterate Buy on Sun Art and Yonghui,with a new target price of RMB8.9for the latter.。

    Sun Art