The 2017 performance is in line with expectations. Revenue rose 5.2 per cent year-on-year to HK $5.412 billion, exceeding Bloomberg's consensus expectations and our expectations of 2.6 per cent and 1.3 per cent, respectively. Revenue from e-commerce business surged 31.4% year-on-year and accounted for 5.7% of total revenue, up from 4.6% in 2016. The overall gross profit margin improved by 0.1 percentage point year-on-year to 59.5%. Store rental costs have decreased, while staff costs and advertising costs have increased. Net profit rose 15.2 per cent year-on-year to HK $500 million. The dividend payout ratio for the year reached 109.8% (99.5% in 2016).

Raise net profit forecasts for 2018 and 2019 by 4.5 per cent and 6.4 per cent to HK $576 million and HK $631 million, respectively, based on higher income and gross profit margin forecasts. Both comparable store sales and comparable store gross margins recovered in 2017, and the recovery remained strong from January to February 2018. The company will increase its overseas purchases from Vietnam and Bangladesh in the future, which will help maintain or improve future gross profit margins.

Raise the target price to HK $5.10 and maintain the "buy" rating. We have observed a strong recovery in all markets, driven by fast-growing e-commerce and wholesale channels. We expect the company's profitability to improve in the next few years, mainly driven by improved gross profit margin and strict cost control. Giordano maintains a very high dividend ratio, which makes the company's dividend return very attractive. Our target price is equivalent to 13.9 times, 12.7 times and 11.7 times 2018, 2019 and 2020, respectively.