1H19 results in line with our forecast
1H19 revenue and net profit rose 0.2% and 2.1% YoY to HK$4,434mnand HK$136mn （HK$0.08/sh）， in line with our forecasts.
Strategy of focusing on profitable business is working. （1） Corestrategic brands revenue rose 5.6% YoY （10.3% YoY on a constantcurrency basis）， accounting for 82% of total sales, benefiting from thestrong revenue growth from Cybex （+29.6% YoY） and the stabilizationof gb and Evenflo （-5.5% and -0.4% YoY respectively）。 （2） Blue chipsales recorded a 15.8% drop due to a higher base as blue chipcustomers enhanced purchases in 1H18 given the uncertain tariffsituation. （3） Tactical brands sales decreased 24% YoY （20.6% YoY on aconstant currency basis） as the company continued to put full focuson its core strategic brands. EMEA and Americas sales rose 20.3% and0.7% YoY, while sales in APAC dipped 5.5% as the decrease fromHappy Dino offset the growth of gb.
GPM rose 1.2ppt YoY to 43.2% on higher sales contribution fromcore strategic brands （with higher GPM） and improved cost efficiency.
Opex ratio was up 0.4ppt due to higher marketing expense andwarehousing & transportation costs. Effective tax rate was up 6ppt onhigher EMEA tax rate.
Trends to watch
Per the company’s expectation, Cybex’s strong growth trend is likelyto continue in 2H19; gb is expected to sustain its turnaroundmomentum initiated during late-1H19, especially in overseas marketand performance of durable goods sales; Goodbaby also forecastsmodest growth from its Evenflo brand on operation optimizationamid macro uncertainties.
Financials and valuation
We maintain our 2019 and 2020 EPS forecasts at HK$0.12 andHK$0.14, implying 18.8% and 21.3% YoY growth. Stock is trading at12.7x 2019e and 10.5x 2020e P/E. Maintain NEUTRAL but lower ourTP by 7.5% to HK$1.70 （12x 2020e P/E）， offering 14.7% upside due toits multinational exposure amid international trade uncertainties.
Risks
Competition from online brands; slowing growth.