This report is read as follows:

Steady growth in income, scientific research plus high-end positioning, significant improvement in product profitability, high performance growth, and prudent overrating.

Main points of investment:

Maintain prudent overweight rating: steady growth in income, significant improvement in product gross profit margin, maintaining EPS of 0.57max 0.65max 0.72 yuan in 2019-2021, 17 times PE in 2019, with a target price of 9.69RMB, with reference to peer companies, maintaining cautious overweight rating.

The gross profit margin improved significantly and the net profit increased significantly. The company's 2019H1 realized operating income of 598 million, an increase of 2.14% over the same period last year, and its net profit was 50.5514 million yuan, an increase of 74.95% over the same period last year. The net profit after deducting non-return was 36.4876 million yuan, an increase of 215.20% over the same period last year, and the non-profit was slightly higher than expected. The high profit growth is mainly due to the improvement of product profitability. 2019H1's sales gross profit margin is 27.48%, which is significantly higher than that of the same period last year.

Adhere to the high-end positioning boutique strategy, strict control of products to improve quality. Companies adhere to the high-quality line, scientific and technological innovation to form the core competitiveness, build competitive barriers, enhance the added value of products and overall profitability. In terms of products, clothing sales revenue reached 424 million in the first half of 2019, an increase of 26.26% over the same period last year. While the revenue scale expanded, the gross profit margin increased by 4.73pct to 26.93% over the same period last year.

Although sales of worsted wool shrank by 34.61% to 157 million, its profitability increased by 4.85pct to 22.68%. In addition, the company makes great efforts to develop high-quality customers, intelligent upgrading of production links to achieve flexible production to meet individual needs.

The clothing layout is becoming more and more perfect, and the coordination of the industrial chain is worth looking forward to. The company has gradually formed an upstream and downstream industrial chain layout. Recently, we will increase the size of downstream clothing, acquire overseas well-known clothing brands, optimize business layout, and give full play to the industrial synergy of textile and fashion brands. Rely on their own advantages, the integration of fashion resources, the future can be expected.

Risk hint: clothing consumption is not as expected, new brand operation, overseas sales are not as expected.