Highlights of the report describe Duoxiai (002761) released its 2016 semi-annual report. During the reporting period, it achieved operating income of 289 million yuan, an increase of 13.96% over the previous year; realized net profit of 9.8948 million yuan, an increase of 6.33% over the previous year; and basic earnings per share were 0.08 yuan/share. Among them, the second quarter achieved operating income of 150 million yuan, an increase of 29.71% year on year, and realized net profit of 1.5557 million yuan, a decrease of 3.36% year on year. Incident review: Traditional channels are sinking, e-commerce channel development is progressing smoothly, and revenue is growing steadily. Duoxi adheres to the positioning of cost-effective fashion bedding products, strengthening marketing channel construction at 4 latitudes, including expanding direct sales channels, consolidating franchise channels, and developing group buying channels. Among them, on the basis of external cooperation and independence, it actively uses online channels and animation IP to cooperate to develop home textile derivatives and attract emerging consumer groups; in the context of the steady overall growth rate of the industry, the company achieved a 13.96% increase in operating revenue by steadily promoting three-dimensional channel construction, increasing consumer audience coverage, and strengthening promotional terminals, etc., with a year-on-year increase in revenue in the second quarter. 29.71%, a significant improvement in growth rate of 28.98 pcts month-on-month. Terminal promotions dragged down gross margins. Expense ratios decreased during the period, and profitability remained stable. During the reporting period, the company strengthened its terminal discount promotion efforts, which affected the gross margin by 4.31 pct to 38.01%; by category, the gross profit drop of kit products, which accounted for more than 50% of revenue, was the biggest drop, reaching 7.74 pct. Price reduction promotions had a significant effect on stimulating sales of related categories, and revenue of kit products increased by 19.52% year on year. In addition, against the backdrop of double-digit revenue growth, sales expenses and management expenses increased by 1.64% and 0.17%, respectively, in the first half of the year. Although the reduction in interest income led to a sharp increase of 101.26% in financial expenses, the impact on the absolute cost scale was relatively small. Overall, the cost ratio for the period decreased by 4.04pct to 33.31%, and the net interest rate decreased slightly by 0.24 pct to 3.42%. The inventory size was lower than at the beginning of the period, and the size of accounts receivable increased slightly from the beginning of the period. Affected by a decrease of 10.74 million yuan and 9.42 million yuan respectively from the beginning of the period, the inventory size at the end of the reporting period decreased by 7.73% to 205 million yuan compared to the beginning of the period; in addition, preparations for the price reduction of raw materials totaled 786,600 yuan, accounting for 1.94% of the book balance. Affected by this, asset impairment losses increased by 680,000 yuan to 1.44 million yuan year-on-year. As of the end of the reporting period, the size of accounts receivable was $51.08 million, an increase of 10.44% over the beginning of the period. Use experience in brand operation and supply chain integration to explore the layout of vertical e-commerce businesses on the Internet. The first is to launch the HBDIY platform, the first online personalized product ordering platform in China; the second is to build a “well-known IP derivatives” operating service provider platform to cooperate with well-known Internet IPs, star artists, music platforms, video platforms, game platforms, and two-dimensional platforms in derivatives operation services. The related business is progressing steadily. We are optimistic about the company's layout in the field of IP derivatives monetization. We expect EPS to be 0.35 yuan and 0.39 yuan in 2016-2017, corresponding to current stock price valuations of 126 times and 111 times, maintaining a “buy” rating. Risk warning: The risk that vertical e-commerce business on the Internet will fall short of expectations.