FY2019 revenue was in line with expectations and net profit exceeded expectations. Revenue fell 16.3% year over year, and fell 12.9% year over year at fixed exchange rates, mainly due to a 14.3% decrease in total sales area. Overall gross margin fell 1.0 percentage point to 50.3% year over year, but the decline in gross margin narrowed in the second half of fiscal year 2019, mainly due to fewer discounted products and lower discount rates. Conventional operating expenses decreased 19.7% year over year, yet there was a one-time loss of HK$1,493 million in fiscal year 2019. Net loss decreased 16.1% year over year to HK$2,144 million.

We forecast earnings per share of -0.372, -0.216 HKD, and -0.080 HKD per share for the fiscal year 2020-2022, respectively. The company expects revenue in FY2020 to record a low double-digit year-over-year decline. The company will continue to reduce discounted products and close loss-making stores. The company expects this to increase gross margin by 3-5 percentage points over the next three years. The company aims to achieve break-even or profit in the next 2.0-2.5 years. We expect the company's net loss to gradually narrow during the 2020-2022 fiscal year.

The target price was raised to HK$1.70 and the rating was upgraded to “Collect”. The company's restructuring project has already had some positive results.

We observed a quarterly improvement in the company's revenue decline and the growth rate of comparable store sales. We are now becoming more confident about the company's restructuring project. We believe continuous improvements in sales quality, strong cost reduction measures, and a streamlined corporate structure will make the company's business healthier and more sustainable. The new target price reflects 12.6% room for growth, so we upgraded our rating to “Collect.”