Results for the first three quarters of fiscal year 14 were in line with expectations, although still weak. Based on a 1.4% year-on-year decline in total sales to 3750 million yuan (about 20% of what we expected for the whole of fiscal year 14), the net profit of shareholders of Parkson Group fell by 32.6% to 22.6 million yuan in the third quarter of fiscal 14. The company's shareholder net profit reached 276 million yuan in the first three quarters of fiscal year 14, which is about 75% of our forecast for fiscal year 14, which is in line with expectations.

There are signs of recovery, but there will be twists and turns in the future. Same-store sales growth in Parkson Group fell 4.5% in the third quarter of fiscal 14, down from 8.9% in the first half of the year. In addition, the company's consolidated gross profit margin reached 18.4% in the third quarter of fiscal 14, up 0.5 percentage points from the same period last year and 0.6 percentage points higher than in the first half of fiscal 14, mainly due to changes in sales categories and stricter promotion strategies. However, we believe that Parkson is also under growth pressure because of the not very optimistic same-store sales growth forecast and the larger input cost of new stores.

Raised to "neutral". We have seen the momentum of improvement in some key indicators, which can improve the confirmation of earnings. The company's shares closed at HK $2.11, or about 13 times the 15-year forecast price-to-earnings ratio, and we believe the downside risk is limited. The investment rating was upgraded to "neutral" and the target price was raised to HK $2.24 from HK $1.77, equivalent to 13.0 times 15-year forecast earnings and 0.8 times 15-year price-to-book ratio.