Incident description Meibang Apparel (002269) released its 2015 annual report. During the reporting period, it achieved operating income of 6.295 billion yuan, a year-on-year decrease of 4.92%; net profit attributable to shareholders of listed companies - 431 million yuan, a year-on-year decrease of 396.57%. Basic earnings per share were -0.17 yuan/share, a year-on-year decrease of 383.33%. In the first quarter of 2016, the company achieved operating income of 1,922 million yuan, up 9.56% year on year; net profit attributable to shareholders of listed companies was 513.734 million yuan, up 32.38% year on year; and basic earnings per share was 0.02 yuan/share, up 100% year on year. Incident reviews The adjustment of franchise channels is lagging behind, and the company's revenue continues to decline. The company lost its performance for three consecutive quarters due to weak terminal demand, rising labor costs, and improper strategies. In 2015, the company increased value exploration of traditional channels, and direct channels reversed the decline in revenue, with a year-on-year increase of 7%; the performance of franchise channels lagged behind. During the reporting period, the company achieved revenue of 6.295 billion yuan, a year-on-year decrease of 4.92%; of these, revenue in the fourth quarter was 1,966 billion yuan, an increase of 2.08% over the previous year. Gross profit decreased, period expenses increased, and net profit lost nearly 40%. During the reporting period, in order to promote terminal retail growth, increase discounts, and reduce product mark-up rates, the company's gross margin decreased by 1.12 percentage points year-on-year to 44.19%. Furthermore, the company increased its support for Internet transformation and development, and management expenses increased significantly. Expenses for the period during the reporting period were 2,635 billion yuan, up 4.48% year on year. Among them, sales expenses, management expenses, and financial expenses increased by 1.31%, 42.91%, and -9.74%, respectively; the period fee rate increased 3.76 percentage points to 41.86% year on year. Affected by factors such as reduced revenue, lower gross profit, and increased expenses, a net profit loss of 431 million yuan was realized in 2015, a year-on-year decrease of 396.57%. Among them, the net profit loss for the fourth quarter was 255 million yuan, down 218.75% year on year and 210.96% month on month. The effects of strategic adjustments were evident, and net profit in the first quarter reversed losses. During the reporting period, the company promoted the transformation and upgrading of franchise stores and actively promoted e-commerce business and O2O business through the successful experience of promoting direct sales channels, so that revenue for the first quarter of 2016 improved year-on-year, and profits turned losses into profits. In the first quarter, operating income was 1,922 million yuan, up 9.56% year on year, down 2.29% month on month; net profit attributable to shareholders of listed companies was 513.734 million yuan, up 32.38% year on year and 120% month on month. The multi-faceted layout of supply chain, O2O, and big data actively promotes the transformation of the Internet. The company's multi-faceted layout actively promotes the transformation of the Internet, and plans to build projects such as an “intelligent manufacturing” industrial supply chain platform, an O2O omni-channel platform, and an Internet big data cloud platform center through fixed increases. The overall development of the Internet business has now also entered a virtuous path. Purchase, the entire network, and Youfan have formed effective driving points through precise positioning, achieving a 123% year-on-year increase in sales revenue. In terms of fixed growth, the company's Internet business will have an average annual sales revenue of more than 12 billion yuan and an average annual net profit of more than 1,58 billion yuan over the next five years. We expect the company's 2016-2017 EPS to be 0.09 yuan and 0.11 yuan, corresponding to the current stock price valuation of 49 times and 38 times. Maintain a “buy” rating. Risk warning: risks such as macroeconomic fluctuations and business model transformation.