16H1 revenue fell 14.89%, net profit fell 13.52%, and gross profit margin and expense ratio both increased. 16H1 achieved revenue of 207 million yuan, a year-on-year decrease of 14.89%; operating profit of 7.64 million yuan, a year-on-year increase of 4.59% a; net profit of 8.73 million yuan, a year-on-year decrease of 13.52%, and EPS of 0.03 yuan. The decline in revenue was mainly affected by weak demand in overseas and domestic markets; the increase in operating profit mainly contributed to the increase in gross margin; net profit after deducting non-profit fell by 45.93% year-on-year, and the decline was higher than net profit, mainly due to a decrease in government subsidies of 2.08 million. On a quarterly basis, 15Q1-16Q2 revenue was -12.89%, -50.78%, -29.99%, -28.28%, -16.16%, -13.38%, net profit -39.96%, -102.44%, -109.17%, -62.40%, -26.18%, and 221.20%, respectively. The decline in revenue in a single quarter gradually narrowed. The increase in net profit in 16Q2 was mainly due to losses in the same period last year, an increase of 5 million in 16Q2 exchange earnings, and a decrease in financial expenses. The gross margin of 16H1 increased by 5.41PCT to 35.57%, mainly due to the purchase of raw materials at lower prices in the previous two years and cost reduction; during the 16H1 period, the expense ratio increased 4.76PCT to 30.51%, of which the sales expense ratio increased by 2.06PCT to 11.30%, the management expense ratio increased 3.69PCT to 13.95%, and the financial expense ratio fell 1.00PCT to 5.27%, mainly due to an increase in exchange earnings of 5 million. Exports and domestic sales both declined, and the share of exports declined (1) By industry, the company was dominated by OBM and ODM. 2016 H1 revenue accounted for 48.15% and 40.75% respectively, and the year-on-year revenue growth rates were -49.91% and 58.08% respectively. Among them, OBM was mainly aimed at Russia, and revenue declined due to poor exports; OEM revenue increased 1.82% year on year; in terms of gross margin, OBM fell 13.77PCT, ODM remained flat, and OEM rose 1.13PCT. (2) By product, the company's revenue was dominated by fur clothing, accounting for 92.79%, and revenue fell 4.60%; the revenue growth rate was faster, with a lower base of fur fabrics and mink breeds, which was 199.70% and 100%, respectively, accounting for 0.06% and 1.48% of revenue; fur fur, fur jewelry, and fashion declined rapidly, -90.41%, -48.19%, -12.53%, respectively. (3) By region, both exports and domestic sales showed a downward trend, with growth rates of -36.22% and -13.88% respectively, accounting for 41.02% (-7.41PCT) and 58.98% of revenue, respectively. The gross margins of exports and domestic sales increased by 1.85 PCT and 1.39 PCT, respectively. Building the entire industry chain layout, Fur City began contributing rental revenue to the company as the leader in the fur industry. Currently, it has covered the complete industrial layout of special animal breeding - fur raw fur trading - fur raw fur processing - fur clothing design and production - fur clothing sales. 1) On the upstream side, the company acquired 8 mink farms in Denmark and Latvia through a Hong Kong subsidiary in 2013, laying the foundation for domestic farmers to introduce excellent international mink varieties and improve the quality of domestic raw fur. Currently, overseas mink breeds are still being cultivated. 2) In terms of midstream fur trading, the holding subsidiary Jingnan Fur City (holding 85.50% of shares) participated in the construction of the upstream fur market: Suning International Fur Trading Center (and Fur Raw Materials Market) opened in June 2014, with a construction area of 130,600 square meters, 752 stores, and about 844 outdoor stalls. 100% occupancy was completed that year; at the same time, it acquired Suning County Shangcun Fur Auction Co., Ltd., which has auction management qualifications, to prepare for the timely introduction of leading international fur auction trading models. Currently, the subsidiary Jingnan Fur City's 2016 H1 net profit is 7.97 million yuan, a loss of 4.44 million yuan compared to the same period last year. 3) On the downstream side, the company has its own brands “Yijiqi” and “Huas”, and also invests in the construction of Huasi Fur City and direct-run store sales networks to develop sales channels. The first phase of Fur City opened in November 2013 and has a construction area of 80,000 square meters. Currently, the two-year rent-free period has ended, and it began contributing to rent income this year; the second phase was already in operation in October 2015, with a construction area of 100,000 square meters; it is also equipped with Huasi Life Shopping Plaza (business registration completed in January 2015), which began contributing to department store rent deduction revenue. Currently, the shopping mall lost 1.95 million yuan in the first half of the year, a decrease from the loss of 6.64 million for the whole year of last year. In terms of direct-run store construction, the company had 13 direct-run stores at the end of 2015, a small increase from 10 at the end of 2012. 4) In terms of supporting financing business, in July 2015, the company invested 3 million yuan (accounting for 60%) with Youshe Technology and Yi Rongdeli to jointly establish Huasi Yiyou Internet Financial Service Co., Ltd. to enter Internet finance. Huasi-Yi is superior to the business registration in August 2015. It has now launched fur pledge financing business, and is not expected to contribute much to performance. There is still room for expansion in consumer finance and cooperation with auction houses in the future. Acquiring 10% of the shares of the influencer agency in the future, the next largest company in the social e-commerce sector participated in 30% of Yoshe Technology's shares with 13.5 million US dollars in May 2015 and connected to the mobile social e-commerce platform “micro-selling”. Yushe Technology contributed 400,000 in investment income in 2015. Currently, “micro-selling” is developing smoothly, and the turnover and number of active people are growing rapidly, and it is expected to achieve profit in 2016. 2016.8.17 The company announced that its subsidiary Huazhuo Investment will acquire 10% of the shares of Shenzhen Future Time e-commerce company for 5 million yuan. Established in 2015, Future Time is an influencer management brokerage company. It has now signed contracts with 20 celebrities with e-commerce monetization capabilities, including “Wang Yuepeng Niko” and “Saya.” The company focuses on the beauty category, effectively integrates influencer incubation, fan operation and e-commerce management, and uses an excellent team in user insight, influencer operation, and e-commerce management to open up fan marketing and e-commerce operations, and effectively link and integrate influencers, fans, platforms, content, brands, supply chains, etc. The future of equity participation is an extension of the mobile social e-commerce industry chain following the company's acquisition of 30% of Yushe Technology's shares in 15 years. The significance of this is: 1) the future business focuses on beauty influencers. The current level of competition in this field is weaker than that of fashion influencers (representing companies such as Ruhan, Tisu, etc.), and there is relatively more room for development; 2) The synergy with micro sales and other resources (such as capital) can be used for business development in the future. We judge that the scale of this investment is small, and the company still has expectations for mergers and acquisitions in related fields in the future. The main business is under pressure and will benefit from industry recovery in the future. All links in the industrial chain are expected to gradually contribute to performance and maintain “increased holdings” rating companies as leaders in the fur industry. The main product demand is located overseas (especially Russia), accounting for about 60% of export revenue in 2015. In 2015, due to the impact of the Russian economic recession, the company's overseas business revenue declined significantly, leading to a decline in performance. Revenue fell 32% and net profit fell 81%; in the first half of 2016, export business revenue continued to decline by 36%. In the first half of 2016, the exchange rate of the Russian ruble against the US dollar stopped its downward trend and appreciated overall. It is expected that the company's export orders will show a restorative growth in the long run as the Russian economy stabilizes. In the short term, there has been no significant recovery in overseas demand. Combined with the expansion of corporate financing compared to the same period last year, and the expected increase in financial expenses, the company expects net profit from January to September 2016 to increase by -30-20% year-on-year. We believe that: 1) The pressure on the main fur business is still high, and the company's sales are sluggish in the first half of the year. Considering the gradual recovery of the Russian economy and the rise in raw material prices, the demand side of the company's export business is expected to improve in the future; at the same time, the company, as a leader in the fur industry, has a full industry chain layout and has overseas mink farm production capacity, combined with sufficient reserves of low-cost raw materials for 14 and 15 years (510 million in inventory at the end of June 2016, of which 381 million in raw materials+turnover materials are expected) to benefit from the restorative growth of future orders and increased gross margin; 2) Multiple industrial chain layouts, Fur City Phase I, Phase II, Youshe Technology will gradually contribute to performance; 3) Social e-commerce, as the second main business, has micro-selling and two future layouts, and there are still expectations for mergers and acquisitions in the future; 4) 2016.3.29 released a fixed increase plan, 6.2 adjusted to raise no less than 14.31 yuan/share and raise no more than 600 million yuan to build a clean production platform and warehouse base to improve the company's raw materials+processing+production+sales fur industry chain. Currently, the fixed increase has passed the review and approval by the Securities Regulatory Commission on 7.14, and approval is still needed. The current stock price is 15.53 yuan, and the fixed increase of the reserve price of 14.31 yuan forms a margin of safety. 5) The cash on account is 343 million, which is quite sufficient. We are optimistic that the company, as a leader in the fur industry and reserves of high and low cost raw materials, will benefit from the overall recovery of the industry in the future, and that all links in the industrial chain are expected to gradually form a positive contribution to promote a recovery in performance at the bottom. We expect the company's business integration in the social e-commerce field and the launch of the next catalyst, adjusting the EPS in 16-18 to 0.07, 0.15, and 0.22 yuan. The short-term valuation is high, but in the long run, the company still has some interest in the recovery of the main fur industry and the subsequent layout of social e-commerce, maintaining an “increase in ownership” rating. Risk warning: Overseas demand is weak, domestic demand is weak, and social e-commerce business is not progressing as expected.