From January to September 2009, the company achieved operating income of 267 million yuan, an increase of 17.37% over the previous year; operating profit of 17.11 million yuan, an increase of 44.26% over the previous year; net profit attributable to owners of the parent company was 4.59 million yuan, an increase of 32.86% over the previous year; and diluted earnings per share of 0.01 yuan.

In the third quarter, the company achieved operating income of 91.37 million yuan, an increase of 4.04% over the previous year; operating profit of 7.91 million yuan, an increase of 51.45%; and net profit attributable to owners of the parent company of 1.28 million yuan, an increase of 41.28% over the previous year.

Reduced cost rates boosted performance. The company specializes in clothing, and began getting involved in futures brokerage business in late 2008. Furthermore, although the scale of the hotel business is small, growth is good and profitability is strong. Currently, the clothing business accounts for about 80%, and futures brokers and hotels account for about 10%. Against the backdrop of a sluggish industry, revenue increased by 17%, reflecting the competitiveness and maturity of the business. The reason profit grew faster than revenue during the reporting period was due to control over expenses.

The gross margin has decreased, and the cost ratio has decreased. In the first three quarters, the overall gross margin fell by 3.59 percentage points. The reason is probably the decline in clothing prices. Hotel gross margin increased year-on-year, but it accounted for a relatively small share, and had little impact on overall gross margin. The expense ratio was 4.97 percentage points, which reduced the decline in gross margin. Among them, the sales expense ratio, management expense ratio, and financial expense ratio fell by 2.65, 2.20, and 0.12 percentage points, respectively. Mainly, the improvement in internal management control efficiency and the decline in interest rates on loans. Control of the expense ratio was the main reason for the increase in performance.

Profitability showed an increase in the third quarter. In the third quarter, the revenue growth rate declined somewhat, but gross margin clearly rebounded, up 2.88 percentage points from the previous year. At the same time, the expense ratio fell 2.03 percentage points, increasing the profit growth rate month-on-month. We believe that gross margin is already at a historical average level, while cost rate control is relatively sustainable, and profit is expected to achieve steady growth in the later stages.

The futures brokerage business is a major highlight. The company began entering the futures business in the second half of 2008. Currently, the scale is still small, and its contribution to overall performance is not significant, but the development trend is good, and gross margin is expected to be a major driving force for performance in the later stages.

Profit forecasting and ratings. The company's earnings per share from 2009 to 2010 are expected to be 0.02 yuan and 0.02 yuan. Currently, the stock price is 12.59 yuan. PE is above normal balance. Due to the growth of the futures and hotel business, we maintain a “neutral” rating for the company.

Risk warning. 1) Risk of macroeconomic fluctuations; 2) Increased costs create a risk of suppressing gross margin.