高鑫零售(06808) 　　We raise our FY16-18 forecasts by 3-13%; maintaining Buy 　　We believe the company is fine-tuning its strategy to be more rational in onlinetraffic investment, while it is developing the O2O business by leveragingexternal delivery companies. This will help Sun Art focus on profitability andthus bring about a total shareholder return. We lift our FY16-18 forecasts by 3-13%, mainly on less investment in online traffic and the narrowed loss-makingin the online business. We believe the O2O alliances should gain traffic, whileprivate label and direct sourcing could enhance the gross profit margin, backedby the company’s strong execution capability. Maintaining Buy.O2O strategy reaffirmed, with a focus on profitability 　　Management is now focusing on developing the O2O business, by formingalliances with O2O delivery companies, including Baidu Delivery, Xiaohehe andShihui. We like the company’s strategy of expanding the O2O practices to tapthe online traffic population, while relieving it from excessive investment inonline traffic and logistics. We have narrowed the online loss-making toRMB540-600m, from RMB570-720m, in FY16-18. 　　SSSg to improve to +1% in FY17, driven by recovering consumer sentiment 　　Prepaid card sales recovered to mid-single-digit (+5% yoy) growth in 9M16,following a mid-high-teen decline in 2013-15. We believe the prepaid card is agood barometer to gauge the consumer sentiment of the food retailers. ForFY17-18, we expect a 1% yoy increase in same-store sales growth, driven byrecovering consumer sentiment and rising CPI. 　　New target price of HKD6.80 (20.5x 2017E EPS); risks 　　We value Sun Art using a DCF methodology (9.5% WACC, 2% tgr), which webelieve is able to capture the future cash flow of the company. Our target priceimplies 20.5/18.4x 2017/18E P/E, in line with its three-year average P/Emultiple. Downside risks: 1) weak same-store sales growth; 2) slower-thanexpected expansion plans; 3) rising opex; and 4) fierce competition.