Revenue in the third quarter of fiscal 2018 was worse than expected. Revenue in the third quarter of fiscal 2018 fell 1.3 per cent from a year earlier to HK $3837, while fixed exchange rate income fell 13.8 per cent from a year earlier. Fixed exchange rate income from retail, wholesale and e-commerce channels fell 17.1%, 12.1% and 11.4% respectively from a year earlier. Same-store sales in retail channels fell 12.7% year-on-year at a fixed exchange rate in the third quarter of 2018, mainly due to reduced store traffic and the negative impact of unusually cold weather in Europe.

The net loss forecast for fiscal year 2018 was raised by 18.3% to HK $1148, and the net profit forecast for fiscal year 2019 and fiscal year 2020 was lowered by 30.0% and 35.4% to HK $88 million and HK $343 million, respectively. The company has decided to fully withdraw its operations in Australia and New Zealand, which is expected to result in an one-time loss of approximately HK $150m to HK $200m in fiscal year 2018, but on the other hand, it will help to improve cost control in fiscal years 2019 and 2020. As we expect weaker retail and ecommerce channels, we cut our revenue forecasts for fiscal year 2018-2020 by 0.5 per cent, 1.9 per cent and 4.1 per cent, respectively.

Lower the target price to HK $3.15 but maintain the "collection" rating. The company will accelerate the implementation of its key strategic initiatives to improve revenue performance and further reduce operating expenses, but the overall business recovery in fiscal year 2019 and fiscal year 2020 may be weaker than we previously expected. The new target price is equivalent to 69.2 times and 17.9 times the price-to-earnings ratio for fiscal year 2019 and fiscal 2020, respectively, and 15.0% upside. So we maintain the "collection" rating.