Revenue for the first quarter of 2018 exceeded expectations. Revenue increased 13.4% year over year to HK$1,457 million. Revenue from e-commerce business increased sharply by 44.6% year over year and accounted for 5.6% of total revenue, up from 4.4% in the first quarter of 2017. Overall gross margin fell 0.5 percentage points year over year to 58.1%, lower than expected, mainly due to the higher share of e-commerce business and the extended promotion period during the late Chinese New Year. Overall same-store sales and same-store gross profit increased by 9.5% and 8.7%, respectively, in the first quarter of 2018.

Net profit forecasts for 2018-2020 were raised by 8.9%, 8.8% and 6.6% respectively to HK$627 million, HK$686 million and HK$728 million. Strong revenue growth and significant improvements in channel same-store sales in the first quarter of 2018 allowed us to maintain confidence in the company's business recovery throughout 2018. As a result, we raised our revenue forecasts for 2018-2020 by 2.2%, 2.3%, and 1.9%, respectively.

The target price was raised to HK$5.60 but the rating was lowered to “Collect”. We have observed a strong recovery in the company's business in the first quarter of 2018 and are expected to continue throughout the rest of 2018. Additionally, Giordano has maintained a very high payout ratio, which makes the company's dividend return very attractive. Our new price targets are equivalent to 14.0 times, 12.8 times, and 12.1 times the 2018, 2019, and 2020 price-earnings ratios, respectively. Our new price target is only equivalent to an increase of 11.3%, so we downgraded our rating from “buy” to “collect.”