Daphne Maintains Target Price HK $10.01 To Maintain Buy Rating

The company recorded a 5% growth in the same quarter in the three quarter, which is in line with our expectations.

We believe that the strategy of small profits but quick turnover will bring pressure on profit margins in the short run, but it will maintain the company's market share and improve its inventory level. It will benefit the medium and long term development. On the other hand, based on the gradual easing of the rising sales cost and the leverage effect of the direct stores in the future, the company's profit margin level will be improved next year.

We maintained an earlier target price of HK $10.01, an increase of 19.2% compared with yesterday's closing price and maintaining a buying rating.

The same quarter growth rate was 5% in the three quarter, which is in line with our expectations.

5% of the same store growth rate was mainly driven by double-digit sales growth, while the paction price declined further than the first half of the year.

The slow growth of the same store was mainly due to the connection between the Mid Autumn Festival and the national day, which resulted in less favorable consumption holidays in the three quarter. Last year, it benefited from the Mid Autumn Festival effect. The company supplied Qiu Dan in early September, and promoted the same store sales growth rate by 23% with the corresponding promotional activities.

The National Day Golden Week performance is mediocre. As a result of the double section effect, the number of outbound tourists has increased, and the consumption desire has been reduced. The sales performance of the first and second tier cities has not been as good as expected; the sales situation of the lower counties and cities is better than that of the first and second tier cities.

The company still maintains 12% of the same store growth target throughout the year.

Small profits but quick turnover are beneficial to improve inventory level and maintain market share, but also result in short term profit margins pressure.

"Small profits but quick turnover" is beneficial to: 1) improve the company's stock level, protect the existing inventory quality, 2) stabilize and enhance the market share of the company; but on the other hand, "small profits but quick turnover" will also lead to the "small profits but quick turnover".

The rate is short term pressure: 1) the promotion time is extended, the annual sales structure change leads to a decline in gross margin, and 2) the white hot price war will continue. Although the price of raw materials tends to be stable, the paction price will continue to decline, and the gross profit rate will further decline.

The structure of sales expenses has been improved, and the efficiency of economic leverage is favorable to medium and long term development.

The company's improvement in the structure of sales expenses is conducive to the development in the medium and long term: 1) the current rising trend of rent has eased somewhat, and the direct stores of the company will gradually reflect the economic scale benefit and dilute the pressure of rent increase next year; 2) enhance the efficiency of each salesperson's operation and then resist the increase in labor costs; 3) make effective resource allocation and management system upgrading for the company headquarters and regional management level to meet the company's future expansion requirements.

Slightly down 12 - 14 profit 2.1%, 2.5% and 3.2%

We maintain an earlier revenue forecast, and only the company's profit margins will be further suppressed.

We believe that the price promotion war will continue. The gross profit margin in the three quarter will be further depressed by the price of the paction, and the growth of the same store will be 12% in the four quarter. We expect that the company will increase its sales promotion in the fourth quarter. Therefore, we expect that the gross profit margin in the second half of this year will decline further than the first half of the year.

We slightly reduced the earnings per share of 12 to 14 years by 2.1%, 2.5% and 3.2% respectively.

Maintain target price HK $10.01, maintain buy rating.

We believe that although the strategy of small profits and quick turnover has led to short term profit margins, it has safeguarded the company itself.

Share and improving inventory level are conducive to medium and long term development. On the other hand, based on the gradual easing of the rising sales cost and the leverage effect of future Direct stores, the company's profit margin level is expected to improve next year.

We maintained an earlier target price of HK $10.01, an increase of 19.2% compared with yesterday's closing price and maintaining a buying rating.