Incident The company released its 2017 annual report, achieving full year operating income of 1,734 billion yuan, an increase of 12.01%; net profit to mother of 188 million yuan, an increase of 60.25% year on year; net profit after deducting non-return to mother 162 million yuan, an increase of 65.79% year on year. Among them, the 2017 Q4 quarter achieved operating income of 529 million yuan, an increase of 15.05% year on year, and net profit to mother of 48 million yuan, an increase of 43.14% year on year. Based on a total share capital of 432 million shares, the company distributed dividends of 2.5 yuan (tax included) for every 10 shares, for a total dividend of 108 million yuan (tax included), accounting for 57.42% of net profit attributable to mother in 2017. Brief review of women's shoes has recovered strongly, channel adjustments have been smooth, and sales efficiency has promoted same-store growth. The company's women's shoes currently have five major brands (including the acquisition of the well-known plus size women's shoe brand KASMASE in late 2017) plus an international agency brand. The sales revenue of the women's shoes business increased 9.66% year-on-year to 1,661 billion yuan in 2017. The overall women's shoe industry rebounded steadily in 2017, and the company's women's shoe sales also recovered strongly. New products were marketable, product unit prices increased, user service experience enhanced sales, and optimized operation and management promoted the improvement of women's shoe sales. In terms of channels, due to the obvious impact on department store traffic in recent years, the company began adjusting channel expansion in 2015, closing inefficient long-tail stores and increasing the number of shopping malls. The overall net closure of 32 stores in 2017 was significantly narrower than last year. The total number of stores at the end of the year was 1,927, and the proportion of direct-run stores increased 2.1 pcts year over year to 66.7%. Among them, KISSCAT and Kisskitty net closed 34 and 30 stores, ZsaZsAzsu and tigrisso opened 24 and 4 stores respectively . While adjusting inefficient stores, the company's new products accurately grasp consumer needs, enhance the quality service experience, and effectively improve the efficiency of single stores. Direct stores and single stores grew by 6.33% in 2017, achieving a nearly double digit increase in revenue under net closing. Among them, sales revenue of KISSCAT, zSAZsAzsu, tigrisso, and KissKitty increased 4.53%, 40.65%, 20.16%, and 7.85% year-on-year to 882 million, 124 million, 405 million, and 194 million yuan, and their own brands maintained healthy growth. At the same time, omni-channel construction was gradually improved, and big data analysis was used to quickly counter the trend to improve sales accuracy. In 2017, online revenue surged 56% year on year to 236 million yuan, and the revenue share increased 7.64 pcts year over year to 13.86%. In addition, the revenue of other packaging and clothing brands such as Catalogue, O BAG, and United Nude increased 54.11% year over year to 42 million yuan. The acquisition of Kid Technology was consolidated in December 2017, contributing to operating income and net profit of RMB 0.24 million and RMB 7.8611 million respectively. Due to the short time period of consolidation, the increase in revenue performance in 2017 was not significant. Omni-channel multi-platform collaborative operation improved efficiency significantly, boosting gross profit margin, management fee ratio, and turnaround days. The gross margin of the company's women's shoes business increased 1.04 pcts to 58.38% year-on-year in 2017. The main driver was that the company built an integrated omnichannel system through measures such as integrated product R&D management, product life cycle management, and collaborative supply chain management to effectively improve product turnover speed and enhance omnichannel sales and operation efficiency. The gross margin of online business surged 7.64 pcts to 56.78% year-on-year. At the same time, strong cost control and increased settlement rates in shopping malls also boosted gross margin growth. The 7.11 pct year-on-year decline in gross margins of other brands dragged down the overall situation, but due to the relatively high share of women's shoes, it still led to a 0.59 pct year-on-year increase in gross margin in 2017 to 57.78%. In 2017, sales expenses increased 13.52% year over year to 520 million yuan, and sales expenses increased 0.4 pct to 29.97% year over year, mainly due to the expansion of sales scale, and corresponding increases in wage expenses, shopping mall expenses, business promotion expenses, etc. Benefiting from vertical integration and flattening of management organizations, the management cost ratio decreased by 1.47 pcts to 14.26% year-on-year with organizational streamlining, process optimization, and improvement in per capita efficiency. The omni-channel system with multi-platform collaborative operation promotes the effective improvement of the company's operating capacity, and the supply chain speed is leading in the women's shoes industry. The number of goods turnover days in 2017 was 207 days, a year-on-year decrease of 32 days. Among them, the quarterly inventory ratio within 1 year increased sharply by 6.92 pcts to 81.27%. The number of accounts receivable turnover days also decreased by 5 to 58 days compared to the same period last year. In 2017, many parties made efforts, and Xiaozi Technology can be expected to grow. The main footwear industry injected Internet+ Technology Gene (1). The company acquired 100% of Xiaozi Technology's shares and was listed in December 2017. Xiaozi Technology achieved a total operating income of 232 million yuan in 2017. Net profit and net profit deducted from non-net profit were 67.956 million yuan and 66.7977 million yuan respectively, fulfilling the performance promise of 65 million yuan. The company targets Xiaozi Technology's Internet digital marketing technology, especially its advantages in the field of user portraits, increasing the company's accurate marketing and broadening the consumer base. At the same time, digitally upgrading user services, deeply cultivating existing users, and strongly promoting the growth of repurchase rates and sales conversion rates is of great significance in implementing the company's consumer-user-centered strategy. Kid Technology promised that the net profit for 2018-2019 will not be less than 84.5 million yuan or 110 million yuan, and the effects of the increase are expected to be significant in 2018. (2) In terms of the main footwear business, the company acquired 65% of the shares of Sister Daxiao Clothing Company for 3.25 million yuan in December 2017 and earned revenue from the plus size women's shoe brand KASMASE. KASMASE is an original designer brand focusing on large size women's shoes in the 38-44 size range. It targets high-altitude women with a height of 165-190cm to help the company enter the women's shoe segment and strengthen the comprehensive strength of its main business. At the same time, in March 2017, the company's wholly-owned subsidiary, Sasasu International acquired 34.43% of the shares of the world's top creative footwear company and international designer brand United Nude for 3.2 million US dollars, using the successful experience of acting as an agent for Patricia's overseas brands to bring new elements such as three-dimensional design to the company's women's shoes and enrich product fashion. (3) In October 2017, the company invested 4,455% of Shenzhen Chuangan Technology's shares with 4 million yuan. Chuangen Technology is a high-tech company that focuses on applying artificial intelligence technology to human health screening and human data analysis. It focuses on the “Senno” series of products. Its advantages in obtaining user data can provide services for manufacturers in personalized customized and flexible production supply chains. Investment suggestions: The company's women's shoes are recovering strongly, the channel structure is constantly being optimized, the multi-brand matrix is constantly being expanded, the omni-channel multi-platform is gradually improving, the growth rate is remarkable, flexible transformation, intelligent R&D, etc. have improved the company's industrial chain configuration, and the acquisition of Kidzi Technology by the epitaxial side has injected digital genes, and the footwear brand expansion is still active. We expect the company's net profit for 2018-2019 to be 3.08 million yuan and 362 million yuan, corresponding EPS of 0.71 and 0.84 yuan/share, and corresponding PE of 15 or 13 times, maintaining a “buy” rating. Risk factors: Demand for terminals declined; new brand promotion results fell short of expectations; the synergy effects of the acquisition of Kid Zi Technology did not go smoothly.