Revenue in 2018 exceeded expectations but net profit was worse than expected. Revenue rose 17.2 per cent year-on-year to 1.706 billion yuan. Overall gross profit margin fell 1.5 percentage points year-on-year to 57.3%. Income from the investment segment fell sharply by 55.5 per cent to 419 million yuan compared with the same period last year, resulting in a 46.1 per cent year-on-year decline in operating profit margin to 24.5 per cent. After excluding the contribution of the investment segment, the adjusted operating profit margin still fell 5.9 percentage points to-0.1% compared with the same period last year due to higher operating expenses. Net profit plunged 60.8 per cent year-on-year to 315 million yuan.

The earnings per share forecasts for 2019 and 2020 were cut by 14.1% and 13.6%, respectively. The company aims to achieve high percentage growth in same-store sales and double-digit percentage growth in retail sales by 2019. We raised our revenue forecasts for 2019 and 2020 by 18.4% and 19.8%, respectively, based on better growth expectations for retail channels and the recovery of the Japanese division.

We expect operating expenses in 2019-2021 to be higher than our previous forecasts. As a result, we cut adjusted operating margins (excluding investment segments) by 4.3 percentage points and 4.9 percentage points to 4.1% and 5.5% in 2019 and 2020, respectively.

Lower the target price to HK $1.50 but still maintain the "buy". The company is taking a number of measures to improve its business, which makes us have better expectations for the performance of our core sportswear business in the next few years. However, the new accounting standards will enhance the impact of the investment segment on net profit. We lowered the target price to reflect the adjustment in the profit forecast. The new target price is equivalent to 12.1 times, 11.6 times and 10.9 times 2019, 2020 and 2021 P / E ratios, and 28.2% upside.