Edited Transcript of 6808.HK earnings conference call or presentation 13-Aug-20 1:00am GMT

Recently, there had been new waves of outbreak of the epidemic in various parts of the world and experts have indicated that we may have to be psychologically prepared for long-term coexistence with this virus.

The epidemic has brought changes to consumer behavior and significant impact have been caused to all industries. Well, fortunately, Sun Art is in the business of people’s daily necessities. Supermarket online sales have been strong during this epidemic time, and performance is some 3 to 4x of the usual. And therefore, for all shops like-for-like, we have been, in this period, achieved double-digit growth. In the first half, our like-for-like had achieved 5.7% same period growth. For our galleries because of the cessation of operation, it has caused rental income impact, but this is fortunately helped by the landlords rental cuts and also government social security concessions, mitigating some of the loss in revenue from the galleries.

And for now, the shops are already back to business for over 97%. And also, the product mix during the epidemic period had also changed. Fresh products, in particular, had contributed largely as a percentage to profit contribution.

Gross profit structure had also changed, causing total gross profit dropped, but different items, cost controls had offset this negative factor.

For our 2 banner integration, the effect is very clear and successful, making the positive contributions to our profits.

For the first half, our operating revenue had increased by 5% — 5.1%. And during the period profit growth have been 15.4%.

This is indeed an unexpected epidemic situation, and it is a stress test that is inescapable for all corporations.

For Sun Art Retail, we have a satisfactory report card coming out of this stress test. As I’ve mentioned in the beginning of the year, this is a huge and sudden crisis, and it is for us as well. But with crisis comes opportunities. Opportunities is available to those who are prepared.

We continue to see online orders rapidly growing and validating our digital transformation 2 years ago. We will continue to build on our foundation and raise our long-term competitiveness. Opportunities are for those who are prepared.

And next, we will have the introduction about the performance for the first half of the year from our CFO.

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Yigang Fan, Sun Art Retail Group Limited – CFO [9]

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Ladies and gentlemen, good morning to you. Next, I would want to talk about our operating environment. If you have the PPT, it is on Page 5. And we have summarized it to the following.

For the first half of the year, with the impact of the epidemic, it had been a negative 1.6% in terms of growth of GDP and also total retail sales of consumer goods, but it is still lagging behind the 6.1% of last year.

The economists and also the PBOC chair had mentioned that for China, it will be one of the few countries with positive GDP growth, and it is recovering.

And for the second half of this year, we are relatively optimistic. And for the total retail sales of consumer goods, it is a negative 11.4%.

June was 1.8% negative, which is turning for the better and if you look at the red line in the right-hand side bottom chart, we will be able to see the trend for the year.

And if we look at the top right-hand side chart, you can see the CPI, which was up 3.8% year-on-year for the first half, and food CPI was up 16.2%, nonfood CPI up 0.7%. And in particular, for pork it is 104.3%. Beef, 20.2% and lamb, 11.1%; and oil, 5.5%; and fruits, 3.3% negative.

And if you look at our — the products that we sell, you can see that it is a positive contribution to what we are — based on what we are selling.

So this is a positive for Sun Art. And if we look at the 50 key retailer sales growth. It is a down trend. And you can see March and April, both negative and April had been a negative 10.5%.

And also, May had not been optimal as well. So the overall operating environment had been difficult, I would say.

Next, if we can look at the right-hand side bottom chart. It is for online physical product sales, which had accounted for 25.2% of total retail sales for the first half, up by 14.3%.

Now for the consumer goods as a percentage of retail, it is negative 1.4%. And this shows that for off-line sales, it is more impacted.

And online sales is some 25.2% of total retail sales, which is 4.7% higher than that of last year. And the growth rate had been slower last year for online sales. But for this year, because of the epidemic, it has changed consumption behavior and it had grown the online consumer behavior.

And it has increased the online product sales causing this increase as a percentage of total retail.

As Mr. Huang had mentioned in 2 to 3 years before this, Sun Art had already gone digital, even though off-line and online, there had been fluctuations for this line — this year, we had recorded an online positive growth.

And next, let’s turn to Page 7 on the expansion status. For the first half of this year, we have opened 1 midsized supermarket and closed 3 loss-making stores. As of the end of June, the group had 481 hypermarkets complexes; and 3 midsized supermarkets.

And the total GFA is some 13,000.

And of this, of the GFA breakdown, lease is 69.9%, contracts 0.3%, self-owned 29.8% and store number breakdown leased 76.7% owned 22.9%, and contract 0.4%.

Hypermarket will be 11% and also 2 to 3 supermarket for He Ma. And also about 10 small supermarkets, that will be the plan for this year.

As for next year, our target would be for midsized supermarket, we will have 30 to 50 opened, small ones 200-plus. So we are back to our fast expansion mode for our shops.

That ends my report here. Now next, Mr. Huang will talk to us about our business review.

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [10]

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Ladies and gentlemen, next, I will be talking about our business review, and Chris will be talking after that about the financials.

Now for our B2C business, a number of B2C users reached nearly 50 million, and active users, nearly 13 million. For the first quarter of 2020, online daily order per store was more than 750 and ticket size more than RMB 85.

For the second quarter, online DOPS was more than 950 and ticket size was more than RMB 68.

On the day of the 6.18 promotion, DOPS leaped to more than 1,750, ticket size more than RMB 70. The group doubled the total revenue and total orders of B2C business compared to that of the same-day last year.

The group set a new record, exceeding the previous peak that was created on double 11 in 2019. With the expansion of ticket size and order density, B2C unit economies was further optimized, and profitability was further improved.

B2B, we have reached active users more than 600,000 and nearly 250,000, respectively, for existing users and active users for B2B business, such as catering and corporates related was affected amid the epidemic, and the performance was below the group’s expectation.

With this stabilization, B2B business grew by 5% compared to same period of last year.

And for our online business, Tmall supermarket inventory sharing, 1-hour delivery for our Tmall supermarket provides customers within 5 kilometers radius and has been brought out to all stores. Half-day delivery is applicable to catchment area within 5 to 20 kilometers radius, 180 stores available for this service ready.

The Tmall supermarket inventory share initiative is still at a pilot stage, and orders continue to grow month-by-month.

Page 12. For our community group purchase, the initiative had been rolled out and adopted a dual operating model with Cainiao pickup and directly developed outlets. Cainiao pickup stations acquired advantage by leveraging our supply chain and sharing more than 50,000 outlets across China.

More than 3,000 Cainiao pickup stations across 16 cities and more than 5,000 directly developed outlets across 85 cities have been rolled out. This is providing a new shopping scenario to our customers.

On Page 13, you’re able to see the remodeling of our hypermarkets. Due to the pandemic, the targeted number of remodeling has been adjusted from previously 50 to 40, of which 5 stores have been completed and 15 are under construction.

For revenue growth rate of already remodeled stores, it’s nearly 7 percentage points better than nonfurnished ones. And this initiative includes store remodeling and gallery upgrading. We expect to provide customers with a completely new shopping experience.

The remodeling is not just about the features, but it is also upgrading the shopping environment for shoppers and also better offerings.

The power of products and services shall return to the essence of retail, enabling the customers to find the reasons to return to the physical stores.

For our multi-format store expansion mode, please look at Page 14. The brick-and-mortar stores have been impacted by e-commerce and peer competition, and the catchment areas have been shrinking.

The customers are demanding ever more convenience in shopping and expanding store footprint by opening smaller and community-based formats is an inevitable direction of development.

The kickoff of multi-format store expansion mode features is going to be hand-in-hand expansion. And as mentioned, we have a number of RT mini and also big to midsized supermarkets and also hypermarkets.

And there will be expected 10 hypermarkets, 2 to 3 supermarkets and 30 mini stores opened for the year.

For the integration of the 2 banners, the integration plays a prominent part to drive the growth of the revenue and profit of the group. Auchan’s gross margin had been significantly improved and the steady decline of fresh goods wastage stage under the Auchan banner had gradually decreased.

The synergies among the departments became more evident with cost control and the DOPS of B2C business under the Auchan banner has increased and enhanced employees efficiency and also greater profit earning.

Now next financial highlights, if you look at Page 17. For the revenue during the first half, even though there had been the epidemic impact, we have been able to achieve a year-on-year increase of 5.1% to CNY 53,170 million.

And same-store 5.7% increase. Our gross profit is a negative 1-point-something percent because of the epidemic situation. But with cost controls and a series of measures we have been able to increase our EBIT by 11% year-on-year to CNY 3,346 million. And EBIT margin had increased 30 basis points to 6.3% and the profit for the period increased 15.4% to CNY 2,191 million.

And we had also increased net profit margin by 30 percentage points to 4.1%. Profit attributable to shareholders increased by 16.8% to CNY 2,000 million and earnings per share is CNY 0.22.

Financial highlights. The CAGR for our revenue and — had been 1.4%, and CAGR rental income is 6.7%. Revenue growth is some 5.1%, which is higher than our historic growth.

Now because of the epidemic impact, there had been for our gross profit and margin, certain impacts. For the gross profit, we have been growing regularly and the CAGR had been 3.5%, reaching 25.3% for 2019, and we have been impacted by the epidemic.

And therefore, it had dropped from 26.1% for first half last year to 24.8% for this year, and gross profit growth has been a negative 1-point-plus percent.

For our financial highlights, if you turn to the next page, you can see that the epidemic had caused havoc to business and also our operating profit had been a growth despite that of 11% from 6% to 6.3% same period compared with last year.

And the CAGR for operating profit had been 6.7%. Net profit and margin, net profit growth had been 11.4% positive. Now if you look at our Page 20, you would be able to see that for the first half of 2020 because of the epidemic, we have instituted significant cost control, and the government had also have helped with our cost control.

So overall, had been a decrease in terms of expenses, and it is a drop of 21.7% for the first half 2019 to 20.9 — 20% for the first half of 2020.

Operating lease changes had also changed. And also with our IFRR (sic) [IFRS] accounting change, we have been recorded — we have recorded operating lease changes of more or less the same. And also staff cost for the first half — for 2019 first half, have been 0.3%. And first half of 2020, it’s dropped by 0.9% to 9.4%. And this is because of the epidemic situation and also the government had given us some support during this epidemic period.

If we look at the balance sheet for working capital days, Page 21, we see that inventory turnover days had come down, and this is in line with what we have communicated with the investors and also for trade payable turnover, also in line with what we have communicated.

And we have an 11-month moving figure. So for the year-end 2019 inventory level had been accounted. And therefore, our total payable turnover days is at 76 days.

And for the net financial position, the cash balance compared to 2019, it had significantly increased from RMB 13,267 million to RMB 16,618 million.

For investment return because of the delays caused by the epidemic, CapEx had been RMB 632 million. But with the shops remodeling and also our hypermarket projects continuing for the second half CapEx will be significantly higher than the first half.

Our ROE had been 8.3% for the first half.

So this ends the financial highlights for the first half. And next, it will be the business strategy from Mr. Huang (sic) [Chris] .

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Yigang Fan, Sun Art Retail Group Limited – CFO [11]

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Ladies and gentlemen, for our business strategies, there are 4 main points this year, development of multi-format and omni-channel and also comprehensive digital upgrading and transformation.

Apart from the shops upgrading in digital, our galleries will also be digitalized. And also, there will be an acceleration of remodeling our hypermarkets as we remodel the shops. And also there will be deepening of integration of our 2 banners. And this has already achieved certain results and achievements.

Next, we will have a Q&A session. Would you please raise your questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

We start the questions now.

Chen Luo

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Chen Luo, BofA Merrill Lynch, Research Division – MD [2]

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I would like to congratulate the management for a very good report for the first half. I have a couple of questions. The first question is about same-store sales. Now with the recent research it is found that for the entire industry for supermarkets, there had been a slowing down of same-store figures.

Can Mr. Huang share with us about this, what about the recent few months? What is the situation, please? And also, can you please share some of the reasons behind that?

And to resolve some of the issues, how do we resolve some of the issues for off-line sales drop? And also, what are some of the policies or measures to bring up the sales for same stores, perhaps on online?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [3]

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Thank you very much, Luo Chen, for your questions. First of all, I would like to share with you that for the first half of the year for like-for-like, it is a 5.7% increase.

And recently, as Mr. Luo had mentioned, it is correct that there had been some pressure. And we look at the situation. Why? For the industry, generally, it is more or less the same.

And for Sun Art, we are already one of the most best-performing ones within the industry.

Now let me explain a couple of things. First of all, for this year, I can say, it exceeds the previous years. For the center — central provinces, Jiangxi, Anhui, Hubei there had been floods. The floods have been very serious. And the floods for this year is really serious.

And also in June, during the Duanwu Festival, there had been a difference from the last year. And also with the epidemic, the students had also been disrupted in the summer vacation.

For example, early in July, in the previous years, the students would come to the shops. But this year, for early July, there had been still the secondary school final examination, and there had not been the start of vacation. And therefore, there had been disruption to this rhythm. And also, for this year, the temperature is relatively higher, that is the weather.

And therefore, the clothing had also — sales had also been affected. And also for seafoods and imported seafoods, for example, the Beijing wholesale market, et cetera, had been affected.

And very, very recently, there had been problems found with some of the importers for seafood. So seafood had been affected as a result. And as a result, it had actually dropped quite a bit in terms of sales because of these reasons.

And the fluctuation of the epidemic with new waves in Beijing, Xinjiang, Dalian, the government had, therefore, clamped down with measures. For example, measuring of body temperature and also closing of some of the exits for shopping malls, et cetera.

And there had been impact on the industry. And also consumption power, I would say, had not completely returned. Some of the consumers have, of course, turned to online. And therefore, it has grown significantly.

But relatively speaking, for the overall consumption situation, it has not completely revived. And therefore, there is a kind of pressure compared with last year. And we have taken up some measures, for example, recently, and actually, even in the beginning, we have already made preparations.

And that is the government had also provided for evening shopping. And also, we have some promotion activities. And what we can do, we are doing. And therefore, for August, for like-for-likes, it is positive growth.

So it seems that we are effective with our measures. And so this is for June, July situation for same-store slowing down reasons and also the measures that we have taken up.

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Chen Luo, BofA Merrill Lynch, Research Division – MD [4]

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My second question is about the extension of stores. We mentioned just now that, that will be mid- to small operations and also multi-format. And also, there will be a new spate of expansion for our stores. So this is a change to our expansion policies. Is that right?

And for our hypermarkets, for instance, for the company’s point of view, are we ready for these mid- to small formats, are we ready?

And do we have the model for mid- to small-sized formats. For example, the small RT, we have some small shops already opened, and we have looked into this. It is meaningful. And also it is borrowing from the experience of Xianda Ma and others relevant operations.

I do not know whether this is a policy. As we open these small shops, we continue to learn and accumulate experience. And also some of the small shops opened by competitors in the beginning, there had been huge costs for ourselves, for Sun Art.

If we pursue this route, how do we — how would it impact our short-term profitability, even though for long term, this may be necessary, but in the short term, what would be the impact?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [5]

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Thank you very much for your very good questions. Few years ago, we have been focused on digitalization transformation. And now we are turning to a multi-format operation.

So Sun Art is now a multichannel, multi-format shop expansion model and this has been working out well.

For mid- to small shops, we are fully prepared. When I say we are prepared because for this model, it is not something new, but I would say this has been 3 to 5 years where we’ve been exploring this.

For this year, we have finally found the right, correct model to pursue.

And then you talked about the Xianda Ma, et cetera. We have absorbed the experience from them. And I can say that we have learned from the — all kinds of experience.

So in the recent time and store, leasing store the performance is well, is good. And we expected about RMB 10 million per store. But in fact, they have exceeded our expectation. Some RMB 20 million, even at the start of store had been achieved. So we are quite excited about this. But of course, we cannot speak too soon. We will have to wait a bit. By the end of the year, we will be clear about this model.

And then you asked a very good question just now. Will this impact us in terms of our profitability for expansion of our shops.

Well, I would want to share with you, we have been profit making the moment we open these stores. And at this point, I’m not going to share with you overly detailed commercial secrets, but I can say that it’s — they have been doing well.

And how does it help us for the RT shops. Now the supply partly comes from our big store supplier. So we do not need a new logistics center. And for our cities, our major cities, we’ll have our independent centers. And this will be of scale, and we will have flexibility, therefore.

So which is the most suitable model if at the beginning, we already start with a huge outlay that would not be good.

So — but of course, we cannot be too small in our investment. But this is indeed something that we have to strike a balance.

And for midsized supermarkets, at present, we have already in progress, 30 to 40, and they are proceeding.

And we have some that are soon to be contracted. So we have a plan for next year, 30 to 50 stores for next year.

And we have already explored a long time for this model. And we have finally come to a good conclusion for this.

So your question is very good. Even though for the short term, it is as such. But internally, we have maybe adjustments for mid- to small shops.

So for us going forward, this will be one of the foundations and directions for our multi-format operation.

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Chen Luo, BofA Merrill Lynch, Research Division – MD [6]

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A follow-up question, Mr. Huang. For this mid- to small format. Can you share with us the store economics, for example, the average GFA per store and also according to our expectations and projections per store sales, what would it be?

And also some of the cycles and figures, can you share with us?

Sorry, one other question. For a traditional big store, there are galleries with this kind of income stream. But these small operations, they are really sales of our own products.

So how does it compare with our traditional big stores.

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [7]

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Good questions again. For our mid-supermarkets, the GFA will be 3,000 to 5,000, that is a size for mid-supermarkets.

For small ones, it will be 200 to 500. For mid-supermarkets, it will be about 100 million. And for small ones, it is about 20,000 to 30,000 sales.

For our shop opening, there had not been any hindrances. Why? Because for small supermarkets, for example, the characteristic is that for these supermarkets only China will have such big communities at the side of one big community, we can have these shops.

So for the big supermarkets, they will have their own revenue streams, there would be galleries for the big stores, et cetera. But then for the smaller supermarkets, I think as I’ve mentioned just now, as I have mentioned a few days earlier, for the small supermarkets, we will have concession or half concession stores as well.

So it also contributes to our revenue. So this is the model. I am sharing this with you.

For the midsized supermarket, it is not the hypermarket model. We cannot, of course, operate midsized supermarkets on hypermarket models. Of course, not.

So we have a partner model, and that is good for our midsized supermarket. So in the future, our management would be very unique for ourselves. This is all I can share.

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Chen Luo, BofA Merrill Lynch, Research Division – MD [8]

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One other question. I don’t know whether this is sensitive, but we’re interested as investors. If I may ask a question, the media had reported for Ali Retail, Mr. Lin, and he is also joining RT-Mart, the banner.

So I would like to know your role in the company, and there had been some rumors about your role and the management, and Mr. Huang and RT-Mart and also Sun Art Retail, we have equated you with them.

So investors are curious about the changes in the management, will there be new developments or changes? Will this impact the company in terms of operations and policies for the future? Mr. Huang, I don’t know whether it’s convenient for you to share.

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [9]

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Yes, I have also read in the media about this message. There had not been any decisions, but for participation and involvement because a few of us, the senior management are already reaching retirement age, really.

And for Ali, I have also spoken to them. We have to prepare for succession. Some Ali people may want to join RT. So internally, we would want to arrange for this. So this had been exposed. And the CEO, of course, is a very important role.

What is most important is that the Board will appoint the CEO. Right now, there had not been any real decisions. This is early yet. So you’re talking about the Xiaohai situation, I’ve only read this in the newspapers. At present, there are no decisions.

As for my retirement, I’ve kind of reached retirement age, but I have no retirement plans just yet. The CEO appointment is a decision of the Board. So at least I have to raise to the Board that there will be retirement. But at present, there’s been no raising of retirement. So there’s been no retirement plans.

And for RT, we have a very complete succession plan. That is the succession for each of the departments. So this is well considered.

And even if I retire, it’s not going to be a problem. If Xiaohai can come join, that’ll be good. And if Xiaohai joins, there will be more Ali resources representing Ali’s support for Sun Art.

And that is good. So I’m not worried for RT. I think we have good people to lead RT in going to new retail, that will be good. If Xiaohai is coming to the company, it is a good thing for Sun Art.

So for Xiaohai if it is true, pointed out in the media, then it is a plus for Sun Art. So please be assured.

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Chen Luo, BofA Merrill Lynch, Research Division – MD [10]

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I think for the capital markets, on the one hand, we want more support from Ali. But at the same time, we would want to see you continue to lead the company for a few more years. For your contribution and status in the company, the investors recognize that. And we would want you to lead the company in a smooth development in the future for a few more years.

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [11]

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Thank you. Just to supplement for RT, the system is well designed. It is not dependent on 1 person or a few persons as leaders. It has a complete system, a mechanism. In the company, I don’t do a lot. But for — to operate our structure and our systems, our colleagues all understand how to operate the system.

So for the system, it is a target quantify system. This system governs the operation of RT. So if you’re interested, I can explain more to you some of the operation of the mechanism.

It is not dependent on individuals, but on the operation of the system itself. I mean there are some 500 stores in the country with over 10,000 people. So we need a system, and this is the system. Thank you for the question.

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Operator [12]

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Next question HSBC, Lina.

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Hau-Yee Yan, HSBC, Research Division – Hong Kong and China Consumer Analyst [13]

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Congratulations for the first half, great performance. Following up Luo Chen’s question, I have a few more. First of all, in terms of the sales trend, B2C, for second quarter, the DOPS is already 950, which is an increase from the first quarter of 2020.

So how do you see the next half daily order per store B2C, do you want to increase your indication? That’s the first question.

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [14]

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For this year, for B2C business, because of the impact of the epidemic, there had been more online sales. So for our per store performance, it exceeds our expectation.

We thought that there will be 1,000 in terms of our daily order per store. But for June, for instance, it exceeds 1,000 already. So for B2C business, we think that we can raise the expectation.

So you are correct in our expectation. But of course, this is an offsetting trade-off situation. Off-line will suffer a bit, we see that whether this can be over offset by online.

Off-line had really been impacted. So this is not only one directional.

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Hau-Yee Yan, HSBC, Research Division – Hong Kong and China Consumer Analyst [15]

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For B2C daily order. It is already 1,200. Is that right?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [16]

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For the second half, yes. We can expect 1,200.

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Hau-Yee Yan, HSBC, Research Division – Hong Kong and China Consumer Analyst [17]

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Are you saying by the end of the year, 1,200?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [18]

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Yes, yes.

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Hau-Yee Yan, HSBC, Research Division – Hong Kong and China Consumer Analyst [19]

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And for B2B, you said just now that there had been some revival recently. So B2B, well, do we have a renewed whole year indication for B2B business?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [20]

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We maintain the first half target. So we want to chase back, make good the first half impact.

Because of the epidemic, a lot of factories have actually not opened. And therefore, some of the business had not been recorded. And also the catering canteens have not opened as well.

And therefore, it’s been impacted. But there’s been some revival. And therefore, B2B is coming back to normal gradually.

So we will be working on our original target, but it may be falling short of that a little bit because the first half have been weak, but our target is unchanged for the team, we would want to reach that target.

The target is — what is a target? It is still CNY 10 billion.

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Hau-Yee Yan, HSBC, Research Division – Hong Kong and China Consumer Analyst [21]

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For the first half off-line, you mentioned that the CPI had also helped. Can you just talk about off-line business in terms of the momentum for growth in the past couple of months, what is the off-line trend?

And also for the second half, what is the target for off-line?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [22]

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Well, basically, as you know, the customers are going online. And so we do not really segregate online and off-line for the time being. We would want to be able to reach an equilibrium like-for-like target.

This is what we want to achieve. Because customers are all going online. But if we look forward, for off-line and online, they’re both our customers, they’re all our customers.

So we would want to reach a like-for-like equilibrium status.

So like-for-like for the first half, it was at equilibrium. Well, for the entire year, well, we would want to reach like-for-like equilibrium.

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Hau-Yee Yan, HSBC, Research Division – Hong Kong and China Consumer Analyst [23]

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Now for rental income for the first half, there had been the closing of the gallery and therefore, rental income dropped.

For the second half, rental incomes will they continue to drop or what? And also for impairment cost. The indication is that there will be more shops. In the second half, there will not be further impairments. Is that right?

And also with the concessions from the government in the second half, will there be more of that? And if so, by how much such concessions, please?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [24]

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For the second half rentals, we believe it will still be impacted negatively because — so for this year, because of the epidemic, a lot of the stores they have felt pressure in terms of the rentals.

And also, it will impact some of these operations and their performance had been — will also be impacted. So galleries income for rentals will be lower, but it will be not as low as the first half. So that is the saving grace.

As for government concessions, there will be less, but there will still be concessions and the policy is that for mid- to small companies, they will provide support, not for big corporations.

And therefore, some of the subsidiary companies, individual mid- to small operations, they will receive the concessions.

So there will be some and the government’s concessions offset the galleries income loss. Because with less government concessions, the galleries rental income would move the other way. So that’s offsetting.

For impairments in the second half, can you discuss that?

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Yigang Fan, Sun Art Retail Group Limited – CFO [25]

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Yes, Mr. Huang. There are no plans to close stores in the second half. But impairment is not directly related to closing of stores.

This has to be clarified. Some individual stores in terms of their performance have been under stress. And these shops will cause impairment costs. And in the second half, we will have to look carefully into this.

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Operator [26]

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Citibank, Wei Xiaopo.

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Xiaopo Wei, Citigroup Inc., Research Division – Director & Head of Asia-Pacific Consumer Research [27]

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Mr. Huang, a couple of questions. I’ll ask one by one.

The first question about the business model. We see that it’s very interesting, the development of the company with the interim and also the reports for Cainiao this is something new. Tao Xian Da and Tmall, Ali, this is another new cooperation. And then you talked about smaller operations, smaller scale. And I think this is interesting. For the consumers, you’re getting closer and closer to the consumers with multi-format operation. It’s not like the original.

A lot of investors thought that it’s going to be big operations, big outlets but on the other hand, you are coming up with different formats.

So in terms of the shop format, whether it is directly developed or Cainiao or using the Alibaba ecosystem. Would you say that in terms of the format and getting closer to the customers, this is your business model in the recent years.

Is that a correct appraisal, Mr. Huang?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [28]

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Thank you for your very good analysis of our business model. For our customers, they want convenience, more and more. In the past for our hypermarkets is one-stop shopping. And one-stop shopping, it is — in terms of demand, it is not as competitive in terms of convenience.

Convenience is a new trend. They want — the customers want the product right away. And therefore, for small outlets, for example, for small RT, it is reasonable, logical.

In Taiwan, I do not see such big communities as we see in Mainland China. For Mainland China, 2,000 or 1,000, 3,000 even 5,000 households in the community is not uncommon.

So the communities will have their own pickup stations or pickup centers. And this is also building on Ali relationship. We’ll get closer to the consumers.

And also for Ali, they have the Cainiao pickup stations with 50,000 outlets across China. And it may increase to 100,000 outlets. So this is natural. We do not have to build it from the ground up. So this is something that is available to us.

So for Cainiao service, it is getting really closer to the consumer. So it is a matching of capabilities amongst stores. Cainiao is partly Ali. And also we take this opportunity to develop our own outlets.

So these are the 2 legs that we walk on in terms of community group purchase.

So in promotions, for our products and also the demand from our customers, I see a lot of other competitors getting into this business. But we have advantages of a number of outlets or shops.

This is an advantage. And it’s hard to build up this kind of outlets. It’s very difficult to build up right away for our competitors.

So therefore, our model, I think, is a correct model. It meets the needs of the customers online and also for convenience, for community purchase. And therefore, I think hypermarkets will become smaller and community based.

So this is a trend.

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Xiaopo Wei, Citigroup Inc., Research Division – Director & Head of Asia-Pacific Consumer Research [29]

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For Cainiao stations, do you think this will be profitable? And what about front end loss? Will there be any?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [30]

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Cainiao is easy. Because it is, I say, natural. It is community purchase, serving the community. If we develop community group purchase, it will take efforts. But Cainiao is already there, and it is different in their contribution to us. They are already there in those locations.

So if we do the community group purchase business, the profitability would be an increase for us. It is extra to us. They already have that operation. They do packages, they do pickup for laundry, et cetera.

So this is part of the service array. So this is not really much extra cost. I think in cost, it is very attractive, I would even say.

So what is most important is that we nurture the habits of the consumers. This is what we have to work on.

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Xiaopo Wei, Citigroup Inc., Research Division – Director & Head of Asia-Pacific Consumer Research [31]

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Two financial questions. Investors would focus on top line, but not really the margin, but I would like to ask Mr. Huang. You have mentioned the GP margin of Auchan, the improvement there.

I would like to know for Auchan. For the first half, the GP margin, was it an increase? If it’s an increase in the future will there be further increase? So that’s the first question.

Second question, it’s been mentioned, the floods and the impact on traffic for the shops. And also, meat prices have been going up and it impacts the business floods as well.

So I would like to know for the negative impact of the floods, how does it impact us? And how does it affect us?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [32]

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The floods impacts traffic, indeed. But for the first half, there had been some growth in some instances of almost 20%. Because why? Because during the epidemic, the government has been encouraging people to do the shopping one-offs, get — buy more in one shopping trip.

So we had RMB 120 even for some of our ticket size. And also for Auchan and the gross margin is increasing and because the purchasing is the same for both sides. In the past, Auchan had been 2% to 3%. It is now just 1.5%. And RT is at 0.5%. So I think there will be attrition.

So I think there will be for the second half, the attrition will decrease, and that means gross margin will continue to increase.

The difference between the 2 is about 1-point-something percent, and this will narrow. So the GP margin will continue to increase even going into the next year.

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George Hsu, JPMorgan Chase & Co, Research Division – Analyst [33]

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JPMorgan, George Hsu. Thank you for the briefing. And congratulations to the company for such good performance. I have 2 questions for Mr. Huang and the management. First of all, on the stores. The location of the stores, for the team, identifying the mid-supermarket and small RT stores location. Will we open this to the franchise? And also, Mr. Huang mentioned that the stores were profitable on opening. What is the breakeven? Is it the first month already — we have already broken even?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [34]

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For the stores, they are doing very well. But it doesn’t mean that each store will right away breakeven on opening. But this is nurturing the shops. The small stops are right at the mouth of the community. So the business is very clear.

And we do not have to nurture them for so long because they’re right at the mouth of the communities. Yes, as for the location, we have the teams for the — identifying the locations.

As for franchise, we have internal franchise, our internal Star franchise. So they may also extend to other channels. So this is the policy and measure.

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George Hsu, JPMorgan Chase & Co, Research Division – Analyst [35]

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Now for the cost for opening a midsized or small size RT store, how much is it? Cost for opening store? And how would this impact the CapEx for second half and for next year?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [36]

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I didn’t give you a lot of the details. I’m not going to give you a lot of the details, but I’ll give you for mid-supermarkets, it will be about CNY 20 million or less. For small, it is less than CNY 1 million. About this line, more or less.

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George Hsu, JPMorgan Chase & Co, Research Division – Analyst [37]

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Next question about Tmall supermarkets for midsized to small supermarkets, sharing of inventory with Tmall. Would this be the model? Or would we be sharing inventory with the hypermarket?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [38]

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Good question. I think there will be cooperation opportunities in the future. Because for the small formats, we will have to link up the systems for inventory for small format supermarkets, they are right at the mouth of the community. Do they have to work with Tmall? That’s most — that is not most important.

But for big and mid-supermarkets, yes, they will share with Tmall.

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Kin Shun Ling, Jefferies LLC, Research Division – Equity Analyst [39]

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Jefferies, Anne Ling. A couple of follow-up questions. Luo Chen asked the question in the beginning about supermarkets and many shops. Can you tell us a little bit more about the profitability, the gross profit, for example, gross profit margin, EBIT margin, how do they compare with hypermarkets, for instance?

And also for mid- to mini, do we have certain services in these stores, please?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [40]

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For mid-supermarkets, there are online service, but not for small ones. We do not consider that. But in the future, we will develop that. But definitely, for mid-supermarket, we have online service.

For mid gross profit margin, it is higher slightly than the big ones. And also for the small supermarkets, we will also raise that.

For EBIT margin, in the beginning it will be more or less the same, and it will be more or less the same until they reach a certain scale. In the beginning, the EBIT margin, we have the model for it. We want to at least breakeven in the beginning. For the few stores that we have opened, they exceed our expectations, I must say.

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Kin Shun Ling, Jefferies LLC, Research Division – Equity Analyst [41]

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For the hypermarkets, I would like to ask the growth is majorly from online, is that right? For O2O, I do not know for the first half, what the situation was. My impression is that our margin was 1% to 2% online and off-line is over 2%. If we take away the cost side.

So in the future, if we have more online, how would this impact our margin? Is the off-line more or less the same as online margin? So what I’m trying to say is that with more online service, this may or may not affect our EBIT margin. Am I correct?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [42]

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You are very detailed in your analysis. For the first half of the year for online EBIT margin, it is higher. Take off cost, it is 3% to 4%. It is partly because during the epidemic time, ticket size had increased. For online business, you cannot think of it as right away profitable. You have to think of how we develop fast, how we grow it. How do we increase our competitiveness, take off the hindrances. We’re not overly impatient patients, not at all.

For fresh online, for instance, there had not been over 1% profit. In fact, most of the operations in the past had been loss-making, except for us, except for Sun Art.

So this is not easy. So for now, we do not want to just focus on profitability, but we want to focus our energies on increasing the scale. And we do not want to give our competitors this vacuum or this space for their growth. So this is our strategy.

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Kin Shun Ling, Jefferies LLC, Research Division – Equity Analyst [43]

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Mr. Huang, for second half, what is our GP margin EBIT? How do you see the second half? Will there be — would it be better than the first half.

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [44]

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For GP margin, our internal target is the same as second half of last year for GP margin. So we’re back to normal.

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Kin Shun Ling, Jefferies LLC, Research Division – Equity Analyst [45]

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What about EBIT, please? I’m so sorry. What about EBIT, please?

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Yigang Fan, Sun Art Retail Group Limited – CFO [46]

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More or less the same. Because of rental impact, it will be low.

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [47]

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Yes, Chris is correct. GP margin for the commodities will be the same. But for the second half because of rental income falling short of target. So the GP margin will be slightly lower. By 0-point-something percent. First half was 1%. Second half will be 0-point-something percent for this impact from rentals.

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Yan Peng, UBS Investment Bank, Research Division – Executive Director & China Consumer Staples Sector Analyst [48]

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UBS, Christine Peng. Two questions, mid- to long-term questions. I can see that for your format in terms of your thinking and plan, it is very clear. So you’re going to have the original big operations. And then you have the multi-format operations. That’s very clear.

Now Mr. Huang, for 3 to 5 years’ time, for your midsized supermarkets and mini stores, what is the number of outlets for these 2 formats of operations in 3 to 5 years, what is the scale? Can you share with us some of the — this with investors?

And last year, you have emphasized that the company in terms of shop extension, you are clearer and clearer in terms of this direction. So what is the mid- to long-term plan?

Second question, in your PPT, you talked about traffic. It is Tao Xian Da and also some of your regional APP, RT, APP and also Feiniu APP. So in terms of acquiring traffic, what are some of your new thinkings, please?

For example, working with Ali, in terms of acquisition for traffic. What are some of the thinking? And what is the logic behind that? And what is the investment in that? Can you tell us about that, please?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [49]

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First of all, you’re very detailed in your analysis for our channels and traffic, including Tao Xian Da, our App, Tmall, inventory sharing. We hope that in the future, the channel will come from multichannels. So we’re opening up different channels. And we are even thinking about the TikTok. We’re even thinking about TikTok.

So whatever can bring us traffic we are thinking about. Multipoints, multichannels.

So I can tell you that traffic channels, the more the merrier.

As for mid- and small stores, in 3 to 5 years, that was your question. I will be frank with you for mid- to small stores. Internally, we have big plans and expectations for these.

In 3 to 5 years, well, will — it will depend on the performance of our openings. As mentioned just now for small stores, it will be over 200 and the team had want to actually have 300 to 500 stores open. So we are confident that we would want to be cautious. So for midsized 30 to 50 stores and for our team, as they say, 50 to 100.

So I would say you can think of it this way. With that kind of target in 3 to 5 years, every year, there will be some 30% or 50% growth.

If you’re talking about the future outlook, I say my team members are very confident. They want to build another RT, a new RT even.

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Linda Huang, Macquarie Research – Head of Hong Kong & China Consumer Research and Chinese Consumer Analyst [50]

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Macquarie, Linda Huang. I’m Linda. Peter, a couple of questions. Can you analyze for us the ticket size for online at RMB 68, which is better than expected. What do you think? Will it continue to increase? And also for the orders, what is our profitability? If we take away cost, what is the operating profit margin compared to off-line? Would it be even higher than the off-line? That’s the first question.

And second question for our mid- to small stores. As mentioned, we have He Ma and He Xiao Ma. For He Xiao Ma, for this format and store after 2 years of piloting, what are some of the adjustments to the model? And what is the best model, please? And also, our mini stores and the supermarkets, SKU, what are the quantity and what are some of the differentiating products when — such as ready-to-cook products? What is the contribution of the sales of these products, please?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [51]

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That’s a lot of questions, okay. First of all, for B2C ticket size is RMB 68.

I remember last year, our target was RMB 65 ticket size. My personal target was RMB 66 to RMB 67. And for our team, the target that I’ve given them. I would say, comparing the actual ticket size is more or less the same as I had planned or expected.

And I would say this is — this has to do with our conditions. For SKU, we had too many SKUs in a sense. And the — for some of the competitors who do not have as many SKUs, it’s difficult to get that ticket size as ours. We have the SKUs, which is good and also, the threshold, I think.

I think the ticket size, there are 2 things. One threshold for the mini mart. And secondly, the SKUs, those 2 factors determine our ticket size and we are comfortable with those. I think for the ticket size, it is right and good for our model. And you talked about the EBIT margin just now. It is slightly lower compared to off-line.

And I think going forward, our EBIT margin, I think, compared to our competitors, it’s hard for them to chase up to us.

They will have to burn some more cash before they can cross that threshold that we have. And so for RT-Mart and the small stores, it is true He Xiao Ma with 1 to 2 years of trials and pilots, we have found the solution and the small RT.

So we are thankful to the He Xiao Ma experience.

And in line with the He Ma system, for our small supermarket, it may be too heavy. Because He Ma is about each of the procedure. The system is for each of the procedure. But for the small stores, and not too many people. For the small stores, we do not have to incur that kind of big cost. So this is different from the He Xiao Ma.

But for the small stores, it is just a few people, and it basically serves the community that they’re located in. That is the thinking.

So this is a very good experience from He Xiao Ma, but the operation is slightly different. And then for the franchise, it is — there are some — or the people joining us are really our internal employees, so this is the model. As for SKU, it will be over 10,000 for our midsized and 2,000 to 3,000 for minis. For ready-to-cook products for minis, we have some — not only ready-to-cook, but already processed foods.

So these are some of our partners supplying to us. So for ready-to-cooks, yes, we have those products as well. But for our mini stores, they are very small. It’s not like the full array of products in our bigger supermarkets.

We only sell what is hot selling in these mini stores.

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Dustin Wei, Morgan Stanley, Research Division – Equity Analyst [52]

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Morgan Stanley, Dustin Wei. For off-line traffic, what is the trend, please? And how has it changed in the past 6 months? And also going into the past couple of months, what was the trend for online traffic? Or was it the same as February or March, please?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [53]

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Thank you for the question. For traffic during the epidemic, it had suffered. But on the other hand, with the revival, it’s better now. But a lot of the customers have gone online.

We cannot just look at traffic. We have to look at the consumption or the ticket size as well. It means that the frequency of shoppers is less so you cannot just look at traffic because you have to look at traffic together with the ticket size.

So in the past, the changes, it is relatively stable. There had not been any further drops. It’s not completely revived or recovered yet. For June and July, we are still impacted by the floods. The floods had given us significant loss. So we are not back to last year’s level as well. But ticket size have increased, and therefore, that compensates partly.

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Dustin Wei, Morgan Stanley, Research Division – Equity Analyst [54]

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Understood. For the first half, rental income had suffered for at least a month, and for the second half, what do you think? Will it be back to balance? Or do you think year-on-year, the rental income is still a drop?

And what about next year and the year after, like-for-like per stop, it is 5% to 8% increase in the past years in the future, will it be this kind of increase?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [55]

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For this year, like-for-like impossible, because for this year, at the present point in time for a lot of the smaller operators, they have already been hurt and they may suffer more so we really feel the pain of these small operators.

So for rentals, I don’t think. We cannot raise rentals. It will be — the rental level will be more or less the same. So compared to last year, it will be less by 5% to 8%. So we may have — we may offer some subsidy for rentals for these shops operators. So hopefully, we’re back to 95% of last year. This is my own personal expectation.

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Dustin Wei, Morgan Stanley, Research Division – Equity Analyst [56]

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So what do you mean by 5% to 10%. I was referring to 2019. So 2020, you’re saying that your rental income would be…

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [57]

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No, for second half of this year. Second half of this year, compared to second half of last year. Second half. So that was the rentals, we were not able to raise our rentals for our properties and so we hope that we will be 95% of what we have achieved second half of last year for rentals.

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Dustin Wei, Morgan Stanley, Research Division – Equity Analyst [58]

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For — what about next year, is it too early to say?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [59]

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This is really too early to say because, strictly speaking, for the Mainland, with the epidemic stabilizing this is not seen in overseas countries.

Some of them are still suffering from the first wave. And then experts say, there may be a second attack from the virus comes winter. So it is still uncertain and too early to talk about the year after. So when — I think we can wait a few more months before we can talk about that.

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Dustin Wei, Morgan Stanley, Research Division – Equity Analyst [60]

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For the first half, we see good profit performance, and the government had given good concessions for social security, outlay concessions as well. What about the second year — second half of the year?

And what do you think? Would it be 50% of what it was in the first half?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [61]

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Oh, yes, 50% to 60% of government concessions and social security concessions of first half, yes.

For mid- to small-sized company, there’s a lot of support. We have subsidiaries and smaller companies. So those will enjoy this concession. And not for a big operation. So yes, 50% to 60%. Yes, I think that can be achieved.

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Dustin Wei, Morgan Stanley, Research Division – Equity Analyst [62]

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What about OP?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [63]

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Same shop, it will be the same. And for second half, the rentals will be level. And also, we have 50% to 60% of the government concession.

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Dustin Wei, Morgan Stanley, Research Division – Equity Analyst [64]

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So for our OP would be the growth year-on-year, would it be the same as year-on-year?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [65]

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I understand your estimates. And I think it is correct. All right.

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Dustin Wei, Morgan Stanley, Research Division – Equity Analyst [66]

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For longer term, small stores — for our small stores and midsized supermarkets, will it be synergistic with hypermarket locations? Big store and small store policy will there be support from big to small store for fresh products or some of the products that are unsold in the small stores, they will be promoted in the big stores.

So — and how do you resolve the conflict between big to small stores? Many stores are located in one area. I think you’re moving into Jiangsu, your stronghold for longer number of years. And would that divert the flow to big stores? How do you ensure that the big stores are not adversely affected? So how do you overall plan for this?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [67]

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For big stores and small stores — for some of the cities, there are no big stores. And because of opening of small stores, we have to open big stores rather than the big stores helping to open small stores in some of the areas.

I do not hear your first question. Can you repeat your first question?

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Dustin Wei, Morgan Stanley, Research Division – Equity Analyst [68]

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I’m just worried that big and small stores between them, there will be conflict of interest. Because we are opening small stores in communities and the mid-stores will also be opened in densely populated areas. Then for the sparsely populated locations of hyperstores, it will further aggravate the traffic there. So how do you balance that?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [69]

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You are correct in your thinking. For small stores in the future, you’re asking whether it would divert traffic to the big stores.

Well, we have to consider issues. It doesn’t mean that if you don’t open these stores, others won’t. So you have to take that into account.

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Dustin Wei, Morgan Stanley, Research Division – Equity Analyst [70]

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So with our big stores plus small stores, is that benefit better than just having big stores or small stores?

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Sheng-Yu Hsu, Sun Art Retail Group Limited – CFO of RT-Mart China [71]

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Yes, there may be some diverting of traffic, but we leave that space for our competitors to open the small stores. We have to occupy the market. Leave no space for our competitors.

Of course, not 100% in that balancing, but it is controllable in the impact to the big stores that you have mentioned.

Internally, we can coordinate. Of course, for the — within the business circle of hypermarket, we will not be opening a number of mid- to small stores. And for mid-stores, of course, right next to it, we do not — we are not going to open a small supermarket.

So internally, we will coordinate.

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Operator [72]

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Last question, [BICC], [Fang Xin Hao]

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Unidentified Analyst, [73]

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Two questions. About the new business format, can you tell us a bit more about the planning? And also profitability cost structure, we do see a lot of community group purchase, people going into that business sector, we see more competition, and there’s been financing for that business sector as well.

So in the future, what do you think is the profit contribution from community group purchase? And how would that affect our profit margin?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [74]

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Good question. In looking into community group purchase, I thought that it’s really a difficult sector. Because it’s a difficult sector, therefore, it is even more interesting as a business model.

For community group purchase, the industry’s gross margin is way too low. And what you want to achieve is daily turnover for this model, who are in hypermarket, we are not into daily group purchase, no. Unlike these community stores, it is a difference. And also, they will have to be, for hypermarkets, cooperation with the wholesalers.

So to me, I think for community group purchase with daily group purchase, this is a different business. And this is a business we want to go into.

And as you mentioned, the profit model if you want to develop the community group purchase and build an unfamiliar community, the entire new supply chain that is difficult. But for us, it is natural. We already have 500 stores nationwide.

We already have the supply system. This is just additional cost. It is not a new inventory center with a new dispatch center that we have to build.

If we cannot build this, others will find it even harder to build.

So there will be a few new entrants, but we have to look at whether this model is going to be profitable for the companies. For some of the competitors, they are burning cash already.

They are already meeting troubles, and the gross margin is not high. For us, community group purchase, we will have to have a few services. Group purchases and also build on our existing system and the dispatch costs will be lower in this. And also, I think our cost would be in a better, more favorable situation than others.

So frankly, for this format, I would say it is going to be a very important format for our group going forward.

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Unidentified Analyst, [75]

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And second question, Mr. Huang, concerning your business strategy. You said that you will be upgrading and going comprehensively digitalization. I’d like to know for digitalization, in the traditional supermarkets, we’ve been doing well.

So what are some of the other areas that you want to continue to improve on? And also, for CapEx going forward, and also in terms of our efficiency, what is your thinking and plans?

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Ming-Tuan Huang, Sun Art Retail Group Limited – CEO & Executive Director [76]

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For our shops digitalization process, we started that and we thought and we asked advice from Mr. Xiang of Ali. And we know that it’s not just about digitalization, but also our gallery should also be digitalized. Otherwise, it will be a shame. The traffic — the growth for traffic is in the shops. But the galleries should also be an engine for increasing our traffic. And the shops in their promotions, in the promotion for sales we should also involve the galleries, digitalize the galleries as well.

The operators at our galleries, are many small, small businesses. So they can also join our APP so as to promote their sales as well together. So you can see they can join a lot of our promotion activities and also join us in the galleries.

So we are digitalization transformation for the galleries as well. So not only for our shops, but a comprehensive digitalization for the galleries. That is our plan.

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Xiaobei Gu, Sun Art Retail Group Limited – Head of IR [77]

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Thank you again for joining the interim results of Sun Art Retail Group Limited. The management apologizes for not being able to come to Hong Kong to have a face-to-face meeting with you, and we wish you every health.