Core ideas:

The company disclosed the 17-year mid-year report. Revenue in the first half of the year was 1.036 billion yuan, up 3.5% from the same period last year, of which revenue in the second quarter was 512 million yuan, up 8.7% from the same period last year. In the first half of the year, the net profit was 177.43 million yuan, an increase of 47.9% over the same period last year, of which the net profit in the second quarter was 77.25 million yuan, an increase of 63.6% over the same period last year.

The company expects its net profit from January to September to range from 201.74 million yuan to 266.29 million yuan, an increase of 25% to 65% from a year earlier. It is proposed to use the capital accumulation fund to increase 8 shares for every 10 shares.

The reduction of sales expense rate promotes profit growth

The company's home net profit rose 47.9% in the first half from a year earlier, much higher than the 3.5% year-on-year increase in revenue.

This is mainly due to the reduction in the company's expense rate and sales expense rate. In the first half of 17 years, the company's sales expense rate was 33.3%, down from 42.4% in the same period last year. The decrease in sales expense rate is mainly due to two reasons. First of all, the company continues to adjust the channel, the number of direct stores has dropped from nearly 2000 in 16 years to nearly 1300 in 17 years, and the reduction in the number of direct stores has reduced sales costs. In addition, the company's e-commerce sales revenue has increased, while the sales expense rate of e-commerce channels is lower.

The channel adjustment continues to deepen, and the efficiency of direct stores has been improved compared with the same period last year.

About 60% of the company's 16-year sales revenue comes from direct stores. Starting from the second half of 2016, the company began to adjust offline channels. The number of direct stores has fallen from nearly 2000 in 16 years to nearly 1300 in 17 years, a decrease of about 35 per cent. However, during the reporting period, the company's revenue increased by 3.5% year-on-year. We believe that in addition to benefiting from the contribution of the growth of e-commerce business, the improvement of the efficiency of direct stores also makes the decline of the company's direct sales revenue less than the reduction in the number of stores.

It is expected that the performance in 17-19 will be 1.27 yuan per share, 1.47 yuan per share and 1.68 yuan per share, respectively. The current stock price corresponds to 24.6x and 21.4x in 17 / 18, respectively. Maintain the buy rating.

Risk hint

The risk that the decline in economic growth will lead to a slowdown in the overall growth rate of the underwear market; the risk of failing to adapt to changes in consumer demand and leading to a decline in market share