Event: the company announced 2020Q3 results, and the overall performance improved steadily.

2020Q1~Q3 achieved a cumulative revenue of 1.321 billion yuan (- 12.56%) and a net profit of 65.4246 million yuan (- 61.92%), of which the net profit of deducting non-return reached 51.8786 million yuan (- 66.71%), which was significantly better than Q2.

2020Q3 achieved revenue of 461 million yuan (- 0.82%) in a single quarter, significantly narrowing and improving compared with the 11.75% decline in Q2. During the period, the net profit was 27.82 million yuan (- 45.11%), and the profit end ring was slightly narrower than the decline in Q2.

Business spin-off: the main business Q3 became regular compared with the same period last year, with a marked improvement in performance. 2020Q3's mobile Internet digital marketing business / kid technology achieved 35.4336 million yuan (- 64.66%) in revenue, which was further enlarged compared with the H1 decline (- 38.34%).

2020Q3's main business fashion footwear business achieved revenue of 425 million yuan (+ 16.79%), month-on-month 20H1 significantly improved, successfully corrected compared with the same period last year.

Changes in accounting standards affect gross profit margins and sales rates, and the overall profitability remains stable: the overall gross profit margin of the company's Q3 reached 62.48% (+ 9.58pct), significantly higher than the same period last year, and remained stable compared with H1.

Expense rate: the Q3 sales, management, R & D and financial expense rates of the company are 41.71% (+ 13.46pct), 10.10% (- 2.36pct), 3.06% (+ 0.99pct) and 0.3% (+ 0.17pct), respectively. The sharp increase in sales rates is mainly due to the change of the new accounting standards of the "total method" to include channel expenses into sales expenses.

Main business brand end: Q3 main women's shoes brand performance rebounded year-on-year correction 1) KISSCAT brand 2020Q1~Q3 realized operating income of 531 million yuan (- 8.56%) and gross profit margin of 64.49% (+ 7.89%), of which Q3 realized revenue of 190 million yuan (+ 10.66%) and gross profit margin of 63.35% (+ 2.34pct). At the end of Q3, the number of KISSCAT stores fell to 831, with a net closure of 139 stores compared with the same period last year.

2) ZsaZsaZsu brand 2020Q1~Q3 realized operating income of 140 million yuan (+ 15.26%) and gross profit margin of 70.35% (+ 8.58%), of which Q3 realized revenue of 52.6458 million yuan (+ 36.48%) and gross profit margin of 68.56% (+ 2.37pct). At the end of Q3, the number of ZsaZsaZsu stores fell to 110, with a net closure of 25 stores compared with the same period last year.

3) tigrisso brand 2020Q1~Q3 realized operating income of 335 million yuan (+ 3.66%) and gross profit margin of 67.41% (+ 7.55%), of which Q3 realized revenue of 122 million yuan (+ 30.07%) and gross profit margin of 68.17% (+ 0.79pct). At the end of Q3, the number of tigrisso stores fell to 373, with a net closure of 40 stores compared with the same period last year.

4) KissKitty brand 2020Q1~Q3 realized operating income of 88.856 million yuan (- 20.77%) and gross profit margin of 63.02% (+ 9.44%), of which Q3 realized revenue of 28.6361 million yuan (- 0.85%) and gross profit margin of 62.22% (- 1.28pct). At the end of Q3, the number of KissKitty stores fell to 111, with a net closure of 68 stores compared with the same period last year.

Main business channel side: offline channel Q3 is corrected compared with the same period last year, and online channel maintains rapid growth. 1) online channel 2020Q1~Q3 achieved cumulative revenue of 335 million yuan (+ 53.4%) and gross profit margin of 64.22% (+ 7.29pct). 20Q3 online channel accelerated, revenue reached 108 million yuan (+ 85.07%), month-on-month accelerated growth compared to H1, sales gross profit margin of 65.33% (+ 12.43pct), profitability enhanced.

2) offline channel 2020Q1~Q3 realized cumulative revenue of 840 million yuan (- 34.38%) and gross profit margin of 66.98% (+ 8.70pct). 20Q3 offline channel continued to improve, revenue reached 316 million yuan (+ 3.68%), year-on-year growth rate corrected, gross profit margin reached 65.61% (+ 8.00pct).

Offline direct channel 2020Q3 realized revenue of 274 million yuan (+ 10.23%) and gross profit margin of 68.74% (+ 8.94pct). The number of directly operated stores at the end of Q3 was 982, with a net closure of 283 stores compared with the same period last year.

Offline joining channel 2020Q3 realized revenue of 42.3491 million yuan (- 25.12%) and gross profit margin of 45.37% (- 2.63pct). On the whole, offline channels are mainly direct channels, and the performance recovery of direct channels is more significant than that of joining channels, promoting the overall performance of offline channels to become regular compared with the same period last year.

The operating capacity remained stable, and the inventory turnover efficiency decreased under the influence of the epidemic. The 2020Q3 inventory scale of the company reached 381 million yuan (- 20.57%), which was reduced compared with the same period last year. During the period, the inventory turnover days were 215.40 days (+ 26.60 days), and the turnover efficiency decreased.

The scale of the company's 2020Q3 accounts receivable reached 193 million yuan (- 29.49%), during which the inventory turnover days were 46.31 days (- 7.23 days), and the turnover efficiency was improved.

2020Q1~Q3 accumulated 168 million yuan (- 17.07%) of cash flow from business activities, of which the net cash flow of Q3 was 42 million yuan (- 29.16%).

Fashion women's shoes quality target, multi-brand effective coverage segmentation, the future performance is expected to continue to improve the company as the domestic fashion women's shoes segment field of high-quality target, its KISSCAT, tigrisso and other women's shoes brands constitute a multi-brand matrix to effectively cover each market segment. Under the catalysis of the epidemic in 2020, the company actively laid out the online channel "Tmall + Vipshop Holdings Limited". According to the characteristics and needs of consumers, big data analyzed and responded quickly to supplement online goods in time to improve the accuracy of goods.

The performance of the company is outstanding in the women's shoes category of double 11 pre-sale activities in 2020. According to the magic mirror market data, as of October 29, the advance sales of tigrisso brand has reached 22.4423 million yuan, and the daily advance volume of women's footwear top10,2020Q4 double 11 and follow-up platform-wide promotion activities are expected to promote the company's main business performance to improve and pick up.

To maintain the "buy" rating, we expect the company's total revenue from 2020 to 2022 to be 19.96,22.18 and 2.457 billion yuan respectively, an increase of 4.45%, 11.13% and 10.75% over the same period last year. The net profit of homing from 2020 to 2022 was 1.51,2.44 and 277 million yuan respectively, with year-on-year growth rates of-27.07%, 61.21% and 13.59% respectively, corresponding to EPS of 0.35,0.57,0.64 yuan and 22.77,14.13,12.44 times respectively.

Risk tips: market demand for high-end fashion women's shoes is lower than expected; raw material prices, labor cost fluctuations; store efficiency growth is not as expected, the growth rate slows down, and so on.