The company announced its 2019 three-quarter report, which is in line with our expectations: achieved revenue of 4,214 billion yuan, up 5.2% year on year; realized net profit of 354 million yuan, up 5.1% year on year; net profit after deducting non-return net profit of 310 million yuan, down 5.6% year on year; net operating cash flow was 473 million yuan, a sharp increase of 177.5% year on year, inventory at the end of the period was 1,935 billion yuan, down 9.8% from the same period, and cash flow from advance accounts continued to improve. Among them, 19Q3 achieved revenue of 1,504 billion yuan in a single quarter, an increase of 1.7% over the previous year, and net profit of 138 million yuan, an increase of 5.2% over the previous year. Expectations for the franchise business were slightly lower, direct-run stores were adjusted, and revenue growth slowed slightly. By business, 19Q1-3 direct sales achieved revenue of 2,795 million yuan, a year-on-year increase of 4.8%; franchise achieved 366 million yuan, a year-on-year decrease of 12.1%; and wholesale achieved 997 million yuan, an increase of 14.3% year-on-year. Domestic sales: 1) The decline in franchise business in Q3 compared to Q2 narrowed to -6.5%. 2) The direct business continued to grow steadily on the basis of store adjustments. In Q1-3 in the first half of the year, the company opened a total of 15 stores and closed 16 stores. Export sales: As the company gradually transferred production capacity to Vietnam at the end of 2018, 19Q1 production capacity gradually climbed, and 19Q2 centralized delivery, 19Q3 continued to maintain a relatively rapid growth rate of 12%. The company's multi-brand and channel strategy continues to advance. 1) Multi-brand development: The multi-brand strategy is still the main line of the company's development. The company has 7 domestic channel brands, including Meike Meijia, ART, ART West, YVVVY, Zest, Rehome, and Jonathan Richard, international wholesale brands Caracole, A.R.T., Jonathan Charles and Rowe, and Ethan Allen brand franchises. In the future, the company is expected to use these brands to continuously expand its consumer base, thereby further increasing its market share. 2) Image Brand Hall creates a new home consumption experience: Meike Meijia Wuhan brand store opened in March 2019, achieving a one-stop home shopping experience with high efficiency, large area, and multiple traffic. In April 2019, the MAC Design and Development Center opened in Highpoint, North Carolina, USA, enhancing the popularity and global brand image of Caracole and A.R.T. overseas. 3) Actively promote 2B business cooperation: Using the advantages of manufacturing and product design and development capabilities accumulated over many years, the company actively promotes cooperation with real estate developers and decoration companies, provides software and hardware assembly and delivery, and supplies soft and soft products to hotel customers. Plan B-side channels ahead of time to seize future volume opportunities. Jointly with Huawei, we continue to push forward the supply chain improvement strategy and continuously improve and optimize the operation management system. On October 20, the company signed a strategic cooperation agreement with Huawei. The two sides will strengthen cooperation in the fields of smart stores, smart logistics, and intelligent manufacturing to promote the digital transformation and upgrading of Meike Home Furnishing. The company fully upgraded its internal management system in the early stages, starting with product management, demand management and supply chain management. Through a sales balance mechanism, the inventory structure was optimized while achieving a product satisfaction rate of up to 96%. The supply chain delivery cycle was improved by 8 days compared to 2018, and the inventory control target was effectively achieved. The company's inventory level at the end of 19Q3 was 364 million yuan lower than at the end of 2018. Expense rate control is effective, but gross margin has declined and interest expenses have increased, and the profit side is under pressure in the short term. The company's 19Q1-3 comprehensive gross margin fell to 53.0% (down 4pct from the previous year), mainly due to: 1) changes in consumption structure due to an increase in the share of revenue from small to medium package products; 2) the increase in the share of foreign wholesale business, which reduced the gross profit margin; 3) the increase in the share of sales of medium to high frequency soft products. In terms of expenses, 19Q1-3 sales expenses were reduced by 2.9 pct year on year. As the company strengthened the control of marketing expenses, we have seen a significant improvement on the sales expenses side; the management expense ratio decreased slightly by 0.2 pct year over year; the financial expense ratio increased by 1.5 pct, mainly due to the company's 19Q1-3 interest-bearing debt ratio of about 58%, 16 pct higher than the same period in 2018, resulting in interest expenses totaling 95 million yuan. The future debt ratio is expected to decrease, relieving the pressure on financial expenses. Meike Group divested the chemical sector and focused on the home furnishing industry, and the group's pledge pressure gradually eased. Earlier, Meike Group transferred 184 million shares of Meike Chemical to Zhongtai Chemical, accounting for 25%. After the transfer was completed, Meike Group's share of shares fell from 33.7% to 8.7%. The group gradually divested the chemical sector, the financial pressure gradually decreased, and obtained cash flow to pay off debts. As the group company reduced its leverage and the main business developed clearly, the factors suppressing stock prices were eliminated. Effectively lay out a multi-brand strategy, launch small and medium-sized products, optimize the household product structure, dig deeper into the potential for supply chain optimization, divest the chemical industry and focus on the home furnishing industry, and continue to incentivize and improve management efficiency. The company integrates multiple brands from furniture manufacturing, marketing and wholesale to retail. In the future, the franchise business is expected to stabilize and accelerate the pace of opening stores; improved supply chain efficiency drives profits, and has a medium- to long-term growth trend. Meike Group successfully divested the chemical sector to focus on the home retail business. The company has enhanced employee cohesion from the top down. The large percentage of repurchases in 2018 shows confidence in sustainable development. Currently, repurchases account for 7.48% of the total share capital. As the performance of the company's franchise business fell short of expectations and the direct stores were adjusted significantly, we lowered the company's profit forecast for 2019-2021 to EPS of 0.27 yuan, 0.29 yuan, and 0.31 yuan (previously 0.29 yuan, 0.34 yuan, 0.39 yuan). The growth rates were 6%, 8%, and 8%, respectively. The current stock price (4.3 yuan/share) corresponds to the valuation of 16 times, 15 times and 14 times. We are optimistic that the company's brand power and manufacturing advantage in finished home furnishings over the medium to long term will maintain buying.