Results for the first half of 2019 were seriously worse than expected. Giordano published a profit warning for its results for the first half of 2019. The company's basic operating profit is expected to fall 28% year over year, and profit attributable to shareholders is expected to fall 38% year over year. We estimate that revenue in the first half of 2019 will record a year-on-year decline in the number of medium to high units, which means that the company's business pressure will continue in the second quarter of 2019.

Earnings forecasts per share for 2019-2021 were lowered by 34.1%, 36.5% and 36.7% respectively to HK$0.206, HK$0.220 and HK$0.243. The severe decline in the company's performance in the first half of 2019 lowered our expectations for the company's 2019 full-year results, as the weak performance in Greater China is likely to continue into the second half of 2019. As a result, we lowered our revenue forecasts for 2019 to 2021 by 8.7%, 11.2%, and 11.7%, respectively. However, we still expect the company's payout ratio to remain high at around 100% in 2019-2021.

Cut the target price to HK$2.86 and downgrade the investment rating to “neutral”. The seriously poor performance of the first half of 2019 undermined our confidence in the company's expectations of a recovery in performance. The company's business is likely to continue to be under pressure during the second half of 2019 and 2020, particularly in the Greater China market. However, we expect the company to maintain a high payout ratio over the next few years, which makes its dividend returns very attractive. Our new target price is equivalent to 13.9 times, 13.0 times, and 11.7 times the price-earnings ratio for 2019, 2020, and 2021, respectively, and 5.0% room for decline.