This report is read as follows:

Performance is lower than expected, business continues to decline, the company integrates global production base resources to change the supply chain system, consolidate the main business, at the same time, continue to focus on the promotion of its own brands, profit prospects to be observed. Maintain prudent overweight ratings.

Main points of investment:

Maintain the "prudent overweight" rating and raise the target price. The performance is slightly lower than expected, the business continues to decline, and the future transformation layout of the company and the profit prospect of its own brand are still unclear. we downgrade our EPS forecast for 2016-18 to-0.14 Rmb0.16 for RMB0.16 (prior to RMB 0.0010 for 2016-17), and raise the target price by RMB6.40, corresponding to 8.5 times Pamp S in 2016, cautiously increasing the rating.

With the adjustment of the main business, both revenue and net profit have declined. 1) the revenue during the reporting period was 308 million yuan (- 5.06%), mainly due to the continued low demand in the market for middle and high-end sports knitted fabrics and clothing. The return net profit is-37 million yuan (- 19.48%), and the loss is due to the influence of various expenses such as the multi-point layout of the company, the construction of production bases in Hubei and Pakistan and the investment of own brands. 2) Q2 revenue of 164 million yuan (+ 20.23%), rebounded somewhat, but net profit dragged down H1 performance, operating profit-28 million yuan (- 30.11%), net profit-24 million yuan (- 35.92%).

Expenses rose slightly and profits fell. The overall gross margin is 20.05% (- 0.87pct), which is basically flat. The rate of sales / management expenses is 17.63% (+ 0.08pct) / 15.25% (+ 0.82pct), which is basically the same. The financial expense rate is 5.95% (+ 1.87pct), which is mainly due to the increase in bank loans and the increase in interest expenses. Net interest rate-13.61% (- 1.95pct), mainly due to the impact of large deferred income tax.

Change the supply chain to consolidate the main business, take a stake in a subsidiary or get the Nintendo agency. 1) the Hubei production base is basically completed, and the synergy of production orders in Shanghai, Hubei and Pakistan is expected to consolidate the main business of middle and high-end sports textile fabrics and enhance profitability; 2) 25.87% of the shareholding software is recognized as a formal developer by Nintendo and Sony Group Corp, which is involved in the development of original mobile games, and is expected to get the "Pokemongo" agency or exceed market expectations in the future.

Risk tips: domestic and foreign demand continues to be depressed, the transformation is not up to expectations, and so on.