Backgammon: Join hands with Tencent JD.com to enter the new era of "smart retail"

Investment advice: The company transferred 6%/5% shares to Tencent/JD Bangneng, and the three parties signed a strategic cooperation agreement. Considering that the three-party cooperation is expected to enhance the company's "digital" operations and supply chain capabilities, as well as accelerate store openings, it is expected to open 100 new stores in 2018. We raised the 2017-2019 EPS forecast to 0.20 (+0.02)/0.24 (+0.03)/0.30 (+0.05) yuan, assigned 1.1XPS in 2018, raised the target price to 23 yuan, and maintained the "overweight" rating.

The complementary advantages of the three parties are expected to enhance the company's "digital" operations and supply chain capabilities. As a leading supermarket company in Hunan, BBK has rich offline resources. As of 2017H1, it has 304 stores (250 supermarkets and 54 department stores) across Hunan, Guangxi, Jiangxi, Sichuan and other regions.

Tencent has the largest online traffic in China, and JD.com, as a self-operated e-commerce company, has strong supply chain capabilities in FMCG and other fields. This cooperation is expected to take advantage of the complementary advantages of the three parties.

The three parties cooperate to explore "smart retail" and help reshape the value chain of the retail industry. This cooperation will carry out cooperation in the fields of building new capabilities, building a "digital" operating system, and ultimately creating a new ecology: 1) Promote the transformation of the traditional model with the core of operating the difference between purchase and sale to a new model of operating the entire customer life cycle; 2 ) Use tools such as mini programs, official accounts, and JD Daojia to realize the diversified management of BBK’s online traffic; 3) Explore the application of image recognition, artificial intelligence and other cutting-edge technologies in offline business formats; 4) Leverage JD’s product supply chain advantages, and The nationwide reach of warehousing and distribution logistics improves the richness and fulfillment efficiency of BBK's product supply chain; 5) Explore offline applications of new technologies through joint ventures or other capital cooperation methods.

Catalysts: The three parties implement business cooperation, or Tencent and JD.com further increase their stake in the company, etc.