Ruyi Technology has signed an exclusive agreement to acquire a majority stake in SMCP Group. According to Ruyi Technology's official website, the founders and management team of Ruyi Technology, KKR, and SMCP jointly announced that they have signed an exclusive agreement on Ruyi Technology's acquisition of a controlling interest in SMCP, but it is still necessary to seek trade union opinions and regulatory approval. We believe that this acquisition is another important strategic layout for Ruyi Technology to extend the industrial chain, especially clothing from well-known overseas brands. SMCP has three luxury brands, Sandro, Maje, and Claudie Pierlot, which have maintained a relatively rapid growth trend in recent years. 1) SMCP is an internationally renowned luxury clothing group headquartered in France. It has three major brands, Sandro, Maje, and Claudie Pierlot, with net revenue contributions of 49%/40%/11%, respectively. Sandro was founded in 1984, SMCP Group was founded in 2010, and 70.2% of the shares were acquired by KKR in 2013. 2) As of the end of 2015, SMCP had 1,118 sales outlets in 33 countries around the world, and 40% of net revenue came from direct-run stores. Currently, 50% of revenue comes from mainland France, but other regions, particularly in the Asia-Pacific region, are growing at a higher rate of net income. 3) In 2015, SMCP's net revenue was 680 million euros, YoY 33%, same store growth of 11%, EBITDA was 110 million euros, YoY 44%, and gross margin and EBITDA profit margins were 62% and 16%, respectively. In the context of the continuous expansion of the luxury industry, SMCP's average net revenue growth rate over the past four years was 26%, and the average number of stores opened was 164 per year. 4) China is one of SMCP's five core markets: as of the end of 2015, there were 45 stores in China, and China accounted for 9% of revenue, and net revenue in the Chinese market increased by 54% in 2015. In recent years, Ruyi Technology has continued to deploy overseas brand resources, and the backgrounds of the Japanese Incentive brand and ITOCHU shareholders provide brand operation and management experience. 1) Ruyi Technology's 15H1 revenue is 10.1 billion yuan and net profit is 200 million yuan. The business mainly involves the textile, clothing and trade sectors, which account for 39%/20%/35% of revenue, respectively, and the apparel sector has the highest gross margin. Ruyi Technology is the controlling shareholder of Shandong Ruyi's controlling shareholder. The actual controller is Qiu Yafu, chairman of the company. 2) The clothing sector has increased the acquisition of overseas brands in recent years. In 2010, it acquired Dignn, one of Japan's largest clothing brand operators, and has about 30 international brands, including Durban and Jagger Shidan. As a century-old company, Incurn has strong brand influence. It has not operated well in the past ten years but has gradually improved. In fiscal year 16, 3Q revenue was 50 billion yen, and net profit was 4.6 billion yen. 3) In 2011, Japan's ITOCHU invested in Ruyi Technology. As of 15H1, ITOCHU and ITOCHU (China) together held nearly 32% of the shares. ITOCHU is a two-shareholder, and its advanced management model has brought some international experience to the company. 4) Ruyi Technology's development strategy is to continue to expand and strengthen the main textile and garment industry, extend it to the entire industry chain through restructuring, mergers and acquisitions, and accelerate clothing brand cultivation and retail network construction. As the only domestic listed company platform within Ruyi Technology Group, Shandong Ruyi is achieving an initial expansion of the industrial chain downstream through a fixed increase in garment assets incorporated into the group's domestic garment assets. Currently, its market value is only 2.5 billion, making it the smallest listed company in the textile and garment industry, maintaining an “increase in holdings” rating. The company plans to increase the issue price by 1,838 billion yuan, and the reserve price for issuance is 914 yuan. Ruyi Technology plans to subscribe 10-40%. The capital raised will be used to acquire the Group's clothing business, expand production capacity, and repay bank loans. The company is a typical large group+small listed company. From July '13 to February '14, trading was suspended for major asset restructuring involving cross-border assets, but it was terminated. As Ruyi Technology continues to deploy mergers and acquisitions of overseas brands, listed companies are also expected to receive greater support from the Group in the future. Maintaining the profit forecast, the EPS for 16-18 was 0.46/0.75/0.88 yuan, respectively, and the corresponding PE was 34/21/18 times, respectively, maintaining the “increase in holdings” rating.