Event description Meibang Apparel (002269) released its 2016 semi-annual report. During the reporting period, it achieved operating income of 3,074 billion yuan, an increase of 10.70% over the previous year; attributable net profit loss of 60.19 million yuan, a year-on-year decrease of 34.57 million yuan; and basic earnings per share - 0.02 yuan/share. Among them, the second quarter achieved operating income of 1,153 billion yuan, an increase of 12.65% over the previous year; attributable net profit loss of 1,156 million yuan, a year-on-year decrease of 22 million yuan. Incident review The direct business increased significantly, the franchise business stopped falling and rebounded, and revenue growth was positive. The company is based in the popular leisure market. While reshaping the competitiveness of Meters/Bonwe, ME & CITY, the company promoted the transformation of the Internet. Direct business revenue grew by 13.24%, and franchise business stopped falling and rebounded, achieving 7.08% growth. From a regional perspective, all regions recorded varying degrees of growth, with the exception of the North region's revenue reduction of 4.34% to 440 million yuan. In particular, the Eastern region grew by 14.20%, further consolidating its dominant position; The recovery in terminal sales in the first half of the year led to a recovery in mid-term revenue after three consecutive years of decline 10.70% is growing, with a growth rate of 12.65% in the second quarter, an improvement of 3.09pct over the first quarter. The decline in the gross profit level of direct management dragged down the overall gross profit margin, and the decline in the period cost ratio led to a narrowing of the downward trend in net interest rates. During the reporting period, the company's direct management/franchise gross margin increased by -3.23pct/1.35pct to 48.32%/39.77%, respectively; considering that direct business revenue contributed nearly 60%, the decline in direct gross margin levels dragged down the overall gross margin level during the reporting period to decrease by 1.21pct to 44.90%; in addition, sales expenses, management expenses, and financial expenses increased by 3.55%, -3.11%, and 6.67% year-on-year respectively during the reporting period. Considering the restorative increase in revenue during the same period, the period fee rate decreased by 3.21pct to 3.21pct to 44.90% 42.39%, benefiting from effective cost control, net interest rate narrowed to -1.96% from -3.41% in the same period last year. Inventory and accounts receivable were both lower than at the beginning of the period, and the increase in procurement led to an increase in prepayments. As of the end of the reporting period, inventory size had decreased 13.3% from the beginning of the reporting period to 1,625 million yuan, and accounts receivable decreased by 20.44% from the beginning of the period to 197 million yuan; during the reporting period, asset output losses increased by 67.58% to 118 million yuan due to a sharp decline in inventory commodity prices. Considering the return of amounts accrued in the previous period, the impact of this decline in inventory prices on profit levels during the reporting period was limited. Furthermore, due to the increase in procurement, prepayments increased by 45.22% from the beginning of the period to $321 million, and net cash flow from operating activities decreased by 174 million yuan year-on-year due to this. Pay attention to the progress of the Internet transformation. In November 2015, the company issued a plan to increase 4.2 billion yuan to build projects such as an “intelligent manufacturing” industrial supply chain platform, O2O omni-channel platform, and Internet big data cloud platform center. The announcement shows that the implementation of these projects will bring in an average annual sales revenue of more than 12 billion yuan and an average annual net profit of more than 1.58 billion yuan over the next five years; the current non-public offering resolution has been extended for 12 months to July 17, 2017. We are optimistic about the company's future development. We expect the 2016-2017 EPS to be 0.09 yuan and 0.11 yuan, corresponding to the current stock price of 50 times and 39 times, maintaining the “buy” rating.