Maintain Buy FY17 core net profit rose 14% YoY to HK$314m （excluding a one-off forexloss of HK$65.1m in FY16）， in line with market expectation. The 15% growth in 2HFY17was stronger than the 8% in 1HFY17. Excluding the change in onerous provision （a noncashand non-recurring item）， adjusted net profit would have jumped 31% YoY. We areglad to see 1） China replacing HK as the company’s largest market in terms of revenuein FY17 （45% vs HK’s 41%）， 2） that Japan market momentum （20%+ top line growth）continued in 4QFY17, 3） the decrease in store area in HK exceed our expectation （-8%vs our estimate of -4%）。 We keep our target price at HK$3.60, still based on 11.3x FY18EP/E （historical average）。
　　China segment profit +32% Revenue jumped 14%, led by 7.1% SSSG and 18% storearea growth, but was partly offset by 5% renminbi depreciation. The proportion of revenuefrom e-commerce increased from 2.5% to 4% of segment revenue. GPM fell 0.5pp to60.9%, mainly due to renminbi depreciation. Opex ratio narrowed 1.3pp to 51.8% becauseof operating leverage. Excluding the change in onerous provision, adjusted segment profitwould have jumped 51%, implying a 2.4pp increase in segment profit margin.
　　Japan segment profit +48% Revenue surged 41%, or 27% based on local currency,mainly driven by an increase in sales to foreigners, followed by growth in sales to localconsumers. Segment profit margin expanded 2pp to 40.1% driven by a 3.3pp expansionin GPM to 71.1%.
　　HK segment suffered a greater loss Revenue fell 6% due to a 4.2% SSS decline andan 8% decrease in store area. Though GPM increased 1.6pp to 58.8% thanks to lesspromotional discounting, segment profit margin dropped from -2.1% to -5.6% as opexratio gained 4.6pp to 64.2% on rising pressure from rental and staff costs. Segment lossincreased from HK$73m to HK$185m.
　　4QFY17 SSS slowed We estimate China SSSG slowed from 18.5% in 3QFY17 to lowsingle-digit growth in 4QFY17. The strong growth in 3QFY17 was exceptional due to thelow base and strong growth in e-commerce sales （Singles’ Day Festival）。 Also, there wasa warmer winter than usual in FY17 and an earlier CNY in 2017. We estimate HK SSSGsoftened from -4.2% in 3QFY17 to high single-digit in 4QFY17.
　　Inventory level increased Inventory turnover days increased from 163 days to 174 days.
　　Excluding inventory provision, inventory turnover days increased from 161 days to 170days driven by accelerated store expansion in China （18.2% store area growth in FY17vs 16.8% in FY16） and weakening sales in HK. Management still feels comfortable withits inventory level as its 2017 Spring and Summer collections makes up the majority ofthe inventory.