Results in the first half of 2018 were better than expected. Revenue rose 14.4 per cent year-on-year to 772 million yuan. Overall gross profit margin fell 2.8 percentage points year-on-year to 58.4%, mainly due to a decline in gross profit margin in China. Income from the investment segment fell 11.3 per cent to 490 million yuan from a year earlier, resulting in a 21.5 per cent year-on-year decline in operating profit margin to 71.5 per cent. After excluding the contribution of the investment segment, the adjusted operating profit margin still fell 3.2 percentage points to 8.0% compared with the same period last year. Net profit fell 10.3 per cent year-on-year to 481 million yuan. The interim dividend is 0.0245 yuan per share, with a dividend ratio of 60.0%.

The earnings per share forecasts for 2018-2020 were adjusted by 4.7 per cent,-3.2 per cent and-5.1 per cent, respectively. We raised our revenue forecasts for 2018-2020 by 3.6 per cent, 3.8 per cent and 4.0 per cent respectively, mainly due to better-than-expected growth in retail channels and recovery in the Japanese division. Due to the improved business performance of the Japan division, we expect better gross margin growth in 2018-20, but operating expenses may be higher than we previously forecast.

Maintain a "buy" rating and a target price of HK $1.70. The company is taking some steps to improve its business performance, which makes us have better expectations for the performance of the company's core sportswear business in the coming years. Investment segment income has accounted for about 50% of total revenue in the past few years, which has led to very high net interest rates and dividend distributions. However, the new accounting standards will increase the impact of the investment segment on net profit. Our target price is equivalent to 11.2 times, 11.5 times and 11.1 times 2018, 2019 and 2020, respectively, reflecting 29.8% room for growth.