高鑫零售(06808) 　　3Q net profit up by 11%, better than expected: As its same-store sales growth(SSSG) improved to flat growth in 9M16 from -4.9% in 9M15, Sun Art was able toachieve positive double-digit profit growth in its offline stores, thanks to effective cost control and GPM expansion. For the offline stores, the OPM improved, as its GPM expansion (by 40bps in 9M16) exceeded the rise the operating expense ratio (by 30bps in 9M16). The e-commerce loss was also well under control. Managementexpects the impact of the y-o-y increase in the e-commerce loss to net profit for FY16e to be 5%, lower than previous guidance of 6%. Thanks to these factors, its 3Q net profit was up by 11% on 4.4% growth in revenue.Concern over market share loss remains: Obviously, Sun Art is losing marketshare to online rivals with flat same-store sales growth (SSSG), a moderate pace of new store openings and slower than expected growth in its own e-commerce. Sun Art is behind budget for its target Gross Merchandise Value (GMV) for its e-commerce, which achieved RMB1.4bn GMV in 9M16 vs earlier guidance of RMB3bn (cut from RMB5bn at the 1H16 results). Sun Art opened 18 stores in 9M16, a 7.8% y-o-y increase in store numbers and is on track to meet its full-year target of 35-40. Together with flat SSSG, it gained 4.4% in sales in 9M16. We believe the tepid sales growth will cap any further re-rating. 　　The re-rating story has largely played out: In our 25 January 2016 report, High growth stock + cold sector = valuation puzzle, we argued the market was too negative on Sun Art’s valuation. Once the worst is over �C stabilisation of margins in offline stores and the impact from e-commerce on earnings getting smaller �C we believe the stock should trade close to its fair value based on the strong cash flow generation of its core hypermarket business. After the shares’ 29% rebound since their January low, we think the possibility of a further re-rating is capped by concerns over its market share loss to e-commerce.Maintain Hold rating with new TP of HKD5.90: We use an unchanged DCF model toset the fair EV of the hypermarket business and we adjust it by net cash and the accumulated loss from e-commerce to derive our fair value. The increase in our target price is due to the change in HSBC strategists’ China risk-free rate assumption. It implies a 2016e PE of 22x vs its average PE of 24x (range 12- 33x) since the IPO in 2010.