Main points of investment:

Revenue fell 9.2 per cent in the first half of 2019, net profit fell 9.3 per cent, and profit growth in the first half was lower than expected. 1) in the first half of 2019, the company achieved operating income of 8.97 billion yuan, down 9.2% from the same period last year, and its net profit was 460 million yuan, down 9.3% from the same period last year. 2) the business is under pressure due to financial pressure in the second quarter of 1919. The company's 19Q2 realized revenue of 4.25 billion yuan, down 19.2% from the same period last year, and its net profit was 240 million yuan, down 2.7% from the same period last year. Before 2018, the company's extensive growth affected the quality of operation and hindered the follow-up development; 19H1 was affected by financial pressure and other factors, business performance was low.

The scale of inventory decreased and the cash flow of export business improved. In terms of balance sheet, the company reported inventory of 4.95 billion yuan in mid-19, down 110 million yuan from the end of 2018, of which the inventory balance of cross-border export business decreased by 367 million yuan compared with the end of 2018. The company obtains the operation data through the business link, develops the matching algorithm model, and manages the inventory and unsalable goods. In terms of cash flow statement, the net operating cash flow of the company in the first half of 1919 was 96.78 million yuan, of which the net operating cash flow of cross-border export business was 280 million yuan, and the cash flow generated by subsidiary global Tesco and Patronson operating activities was 1.0 yuan and 180 million yuan respectively. Since 2018, the company has adjusted its business strategy and strengthened the fine management of the system and business internally, aiming to optimize the operation quality such as cash flow and inventory turnover, and promote fine operation.

The revenue of the global Tesco proprietary website is under pressure, and the conversion rate decreases with the increase of user scale. 1) the revenue of self-supporting websites is downward. The revenue of 19H1's self-run comprehensive website Gearbest reached 1.51 billion yuan, down 25.6% from the same period last year. The revenue of clothing self-supporting websites (ZAFUL, Rosegal, etc.) reached 1.31 billion yuan, down 20.6% from the same period last year. 2) increase the scale of users in overseas markets. In the first half of the year, Gearbest launched 23 national stations, increasing the number of registered users by 3.65 million to 45.3 million. ZAFUL has positioned itself as a global online fast fashion clothing brand, adding new categories of sportswear and men's wear, greatly expanding its product line, successfully launching localized operations in more than 20 national stations, and carrying out a series of offline experiential brand activities, with an additional 7.99 million registered users reaching 28.22 million. Rosegal added 1.5 million registered users to 18.87 million. 3) the flow rate is transformed into pressure. In 18 years, the traffic conversion rates of Gearbest, Zaful and Rosegal websites were 1.4%, 1.2% and 1.1% respectively, which was lower than that of the 18 annual report as a whole. Among them, the 90-day repurchase rate of Gearbest users reached 50.9%, which was higher than the repurchase rate of 43.2% in the same period of 18 years.

Pattoson and Youyi e-commerce have increased slightly, and intensive cultivation has strengthened their core competitiveness. 1) in terms of performance growth, the revenue of Qianhai Patuxun, a subsidiary of 19H1, increased by 8.3% year-on-year to 1.58 billion yuan; Youyi e-commerce revenue increased by 4.0% to 2.74 billion yuan. 2) in terms of logistics warehousing construction, 19H1 has an overall warehousing area of 400000 square meters, 67 overseas warehouses, and more than 60 logistics special lines have been built. The delivery of Zhaoqing Logistics Park promotes Globe Tesco to centralize the relevant warehousing and logistics business, further optimize warehousing cost advantages, realize automatic sorting of collected goods and parcels, and improve the efficiency of the logistics system. 3) in terms of self-owned brands, the company operates nearly 200 strategic brands, core brands and supporting brands, and its own brand operating revenue reaches 3.66 billion yuan, accounting for 40.9% of the total business revenue.

The operation of the company is in the adjustment period, and the fine management of the system and business will be strengthened internally. Over the past 19 years, the company has continuously upgraded and improved in logistics warehousing, big data technology, private product brand and supply chain system, and gradually improved the management quality pressure brought about by the previous extensive growth. Considering that the company's business operations are still in the adjustment period, we downgrade our profit forecast for 19-21 and estimate that EPS for 19-21 will be 0.60 and 0.67 EPS (the original forecast for 19-21 will be 0.770.98 and 1.21), corresponding to the PE for 19-21 will be times higher than that of 11-10-9, maintaining the "overweight" rating.