Revenue in the third quarter of 2018 fell short of expectations. Revenue fell 5.2 per cent year-on-year to HK $1.176 billion, accounting for only 20.1 per cent of our full-year forecast. The company has seen a significant drop in sales as a result of a setback in consumer confidence in the Asia-Pacific region since June. Overall comparable store sales (CSS) fell 2.8% year-on-year in the third quarter of 2018, the first year-on-year decline since the third quarter of 2016. The company made a net decrease of 37 stores during the third quarter of 2018, mainly Chinese mainland and Taiwan, with a total of 2407 stores as of September 30, 2018.

The 2018-2020 net profit forecasts were cut by 8.8 per cent, 8.6 per cent and 4.4 per cent to HK $511 million, HK $582 million and HK $641 million, respectively, based on lower revenue forecasts. Revenue in the third quarter of 2018 was worse than expected, mainly due to a decline in the number of customers in brick-and-mortar stores. As a result, we have lowered our revenue forecasts for 2018-2020 by 2.9%, 2.6% and 1.4% respectively to reflect the pressure on retail channels.

Lower the target price to HK $4.60 but maintain the "buy" rating. The company's business recovered strongly in the first half of 2018, but weakened in the third quarter of 2018. Depressed consumer sentiment in the Asia-Pacific region is likely to persist in the coming months, causing us to worry about Giordano's income growth in the fourth quarter of 2018 and the first half of 2019. Our new target price is equivalent to 14.2 times, 12.5 times and 11.3 times 2018, 2019 and 2020, respectively. The company's share price has fallen sharply recently, and our new target price is still equivalent to 28.5% of the upside, so we maintain our "buy" rating.