Revenue side: The main brand grew steadily, and the new brand slightly exceeded expectations. 24H1's revenue was 7.2 billion yuan, +10.4% year-on-year. 1) Main brand: 24H1 Special Step's main brand revenue was 5.79 billion yuan, +6.6% year-on-year. By channel, the main brand's online e-commerce revenue growth was superior to offline. E-commerce increased by more than 20% year-on-year, and its share has increased to more than 30%. 2) Professional sports: 24H1 professional sports business revenue of 0.59 billion yuan, +72.2% year-on-year, exceeding expectations. By channel, direct sales channels maintained a rapid growth trend of +69.9%; wholesale channels were +136.0% year-on-year due to a smaller base; e-commerce channels were driven by new product sales, +61.8% year-on-year.

3) Fashion sports: 24H1 fashion sports business revenue was 0.82 billion yuan, +9.7% year over year. The growth was mainly driven by revenue in mainland China (revenue in mainland China +85.7% year over year).

Profit side: Gross margin increased significantly, 24H1 net profit to mother +13.0% year-on-year. 24H1's gross profit was 3.31 billion yuan, +18.5% year over year, gross profit margin 46.0%, +3.1 ppt year over year. The reasons for the sharp increase in gross margin are: 1) the increase in the share of e-commerce business in the main brand period led to an increase in gross margin; 2) the gross margin of the fashion sports business increased due to good sales growth in mainland China and the higher DTC model in mainland China during the period; 3) the professional sports business increased gross margin due to the company's acquisition of all interests in Sauconnie and Mille joint ventures during the period. 24H1's net profit to mother was 0.75 billion yuan, +13.0% YoY. The company paid a dividend of HK$0.16 per share in the interim, with a dividend payout ratio of 50%.

Operating side: Inventory levels are healthy and cash flow continues to improve. During the period, the company's inventory was healthy and manageable, and the number of inventory turnover days was 100 days, an increase of 10 days over the previous month. The company's working capital index was healthy. The number of accounts receivable turnover days was 100 days, down 6 days from month to month; the number of accounts payable turnover days was 110 days, down 3 days from month to month. The company's cash flow continued to improve. As of the end of the period, the company's net cash and equivalent was 1.41 billion yuan, +51.7% year over year.

Our view: Tep Group's diversified brand matrix is getting better: the main brand focuses on popular professional running shoes, and the new brand focuses on high-end running shoes. As K&P may complete the divestment of the company in the second half of the year, we have adjusted our profit forecast. We expect the company's 2024-2026 revenue to be 15.36 billion yuan/16.29 billion/ 18.79 billion yuan, respectively, +7.1%/+15.3%; net profit to mother will be 1.29 billion yuan/1.45 billion yuan/1.65 billion yuan, respectively, +25.5%/+12.2%/+13.9% YoY, maintaining a “buy” rating.

Risk warning: Terminal recovery falls short of expectations, new brand promotion falls short of expectations, macroeconomic impact.