Revenue and net profit for the first half of the year both declined 9%, while gross profit margin and net interest rate improved in Q2. The 19H1 company achieved revenue of 8.970 billion yuan, a decrease of 9.16% from the previous year, and net profit of 460 million yuan, a decrease of 9.25% from the previous year. The gross margin was 39.99%, which is basically the same as the same period last year. The net interest rate was 5.13%, which is basically the same as the same period last year. Revenue of 19Q2 was 4,247 million yuan, down 19.15% year on year, net profit was 237 million yuan, down 2.74% year on year. Gross margin was 36.31%, up 0.52 pct year on year, net interest rate was 5.59%, up 0.94 pct year on year.

In 19H1, Youyi e-commerce grew steadily, and net interest rates increased year-on-year. Revenue in 19Q2 fell 19.15% year-on-year. Due to the slowdown in e-commerce business growth, combined with trade frictions between Europe, the US and China, cross-border e-commerce business fluctuated. In 19H1, Global Tesco achieved revenue of 4,587 million yuan, a year-on-year decrease of 21.23%, net profit of 263 million yuan, a year-on-year decrease of 26.10%, a net interest rate of 5.72%, a year-on-year decrease of 0.37 pct; Patson's revenue reached 1,582 million yuan, a year-on-year increase of 8.29%, net profit of 115 million yuan, a decrease of 8.84% over the previous year, a net interest rate of 7.29%, a decrease of 1.37 pct over the previous year; Youyi e-commerce revenue was 2,743 million yuan, an increase of 3.99% over the previous year, net profit of 152 million yuan, an increase of 6.71% over the previous year. The net interest rate was 5.53%, an increase of 0.15pct over the previous year.

Global subsidiary site revenue declined year over year. The 19H1 global self-operated website achieved revenue of 2,824 million yuan, a decrease of 23.33% over the previous year, third party revenue of 1,560 million yuan, a decrease of 19.00% over the previous year, and cross-border imports of 203 million yuan, a decrease of 4.99% over the previous year. Among them, the revenue of electronic stations and clothing stations in the self-operated business was 1,512 billion yuan and 1,312 billion yuan respectively, a year-on-year decrease of 25.55% and 20.61%. The monthly activity of Gearbest, Zaful, and Rosegal in 19H1 was 3961, 3314, and 10.86 million people respectively, with year-on-year growth rates of -6.49%, 38.03%, and -46.18%, respectively; the 90-day repurchase rates were 50.9%, 27.4%, 26.9%, and +7.7pct, +0.1pct, and -6.8pct; conversion rates were 1.40%, 1.21%, 1.11%, year-on-year, -0.79pct, -0.70pct, -0.87pct; the three websites were often The number of SKUs available was 86.2 million, 108,000, and 182,000, respectively, compared to +449,000, +60,000, and +48,000; customer orders were 51.4, 44.9, and 47.9 US dollars respectively, compared to -2, -4, and +11 US dollars.

Asset impairment losses accrued in 19Q2 were reduced, which was beneficial to net profit. Net interest rate increased in 19Q2, mainly due to 1) asset impairment losses accrued in 19Q2 accounted for 0.01% of revenue, a year-on-year decrease of 0.63 pct, 2) The share of income tax in total profit in 19Q2 decreased 6.81 pct to 16.69% year-on-year. The 19H1 company rationally manages inventory and cash flow to improve operating capacity. As of 19H1, the company's cross-border export inventory decreased by 367 million yuan compared to the end of 2018, and the net operating cash flow for 19H1 was -0.97, an improvement from 18H1 (-164 million yuan).

Build a logistics system to establish cost advantages and continue to promote private brand building. The 19H1 company focused on building its own logistics line service system and establishing warehousing cost advantages, including: 1) the warehousing logistics system. By the end of the first half of the year, the company's storage area reached 400+ million square meters. Among them, China's internal and overseas warehouses were 16 and 67, respectively, and the storage area was 30+ and 10+ 10,000 square meters. 2) Independent logistics lines. By 19H1, the company had built more than 60 independent logistics lines. Furthermore, the company continues to promote its own brand building. 19H1 has nearly 200 brands. The revenue of its own brands increased 5.11% year on year, accounting for 5.55pct to 40.86% year on year.

Profit forecasting and valuation. We expect the company's net profit in the 19th and 20th to be 826 million yuan and 1,016 million yuan respectively. As of the close of the 2019/8/27 market, the corresponding price-earnings ratio was 13 and 10X, giving the company 13-14X PE in 2019, corresponding to a reasonable value range of 6.89 to 7.42 yuan, a “neutral” rating.

Risk warning. Changes in the overseas consumption environment, the risk of inventory backlog, and the expansion of import business fell short of expectations.