The results for the first half of 2018 were in line with expectations. Revenue for the first half of 2018 was 772 million yuan, up 14.4% year on year; net profit was 481 million yuan, down 10.3% year on year, corresponding to earnings of 0.08 yuan per share, in line with our expectations. The company plans to pay an interim dividend of 0.05 yuan/share, corresponding to a dividend ratio of 60%. Domestic sales increased 14.5% year on year to 649 million yuan. Among them, Kappa adult offline and Kappa children increased 17.9% and 16.3% year on year respectively, and Kappa adult online decreased 12.3% year on year. Retail sales and same-store sales both recorded low to medium digit growth in the first half of the year. Direct sales accounted for 62.9%, up from 55.3% in the first half of 2017. As of the end of the first half of 2018, Kappa and Kappa children's retail stores reached 1,104 (down 15.8% year on year) and 335 (up 2.1% year on year), respectively. Sales in Japan increased 13.9% year over year to 123 million yuan, and losses in the Japanese business narrowed markedly. Financial performance: The gross profit margin fell 2.8 percentage points to 58.4% (after deducting the impact of inventory impairment losses and recoveries), net investment income fell 11.2% to 490 million yuan, and the sales management expense ratio increased 3.6 percentage points to 54.4%, mainly due to a 37.9% year-on-year increase in marketing expenses. Trend management expects the clothing business to achieve medium to high single-digit growth in same-store sales, 10-15% growth in retail sales, and double-digit growth in overall store efficiency. The company will pay more attention to product updates while continuing to close or renovate stores with poor retail performance. Earnings Forecast We maintain our 2018-19 earnings per share forecasts of $0.13 (down 3.1% year over year) and $0.14 (up 3.8% year over year). Valuation and recommendations Currently, the company is trading 7.5 times and 7.2 times the 2019 price-earnings ratio. Based on some aggregate valuation adjustments, we maintained our recommendation rating and raised our target price by 6% to HK$1.87, corresponding to a 55% upside. Considering that the company has a lot of business, we gave the company a 10% valuation discount and gave the company's apparel business a price-earnings ratio of 14 times that of 2019. Risk consumption declined further; the apparel industry sentiment fell short of expectations.