Top line met expectation but bottom line missed. 1HFY17 revenueincreased by 0.9% YoY to RMB19.53 billion, with revenue from footwearbusiness declining by 12.7% YoY, and revenue from sportswear and apparelbusiness increasing by 14.9% YoY. Overall GPM declined by 2.8 ppt YoY to53.9%. Net profit plunged by 19.7% YoY to RMB1.73 billion. Interim dividendis RMB0.12 per share, representing a payout ratio of 58.4%.
　　Belle has implemented a series of major transitions regarding itsfootwear business. Changes include pricing strategy, O2O stores andreview of the portfolio of brands and stores. Management indicated thatfootwear business is still under pressure according to the sales performancein September and October, and there might be a "colder winter" for China'sfootwear industry in the next few years. We expect the deterioration of theCompany's footwear business to continue in FY17-FY19.
　　Cut TP from HK$4.90 to HK$4.30 and reiterate “Neutral”. We revise downFY17/FY18/FY19 EPS forecasts by 1.8%/9.3%/9.6%, respectively, onmanagement's more pessimistic outlook on the Company's footwearbusiness. The new TP represents 8.5x/9.4x/9.5x FY17/FY18/FY19 PER,respectively. Risks: 1) weakened market demand, 2) fierce competitionfrom its peers and online brands, 3) failure of the newly launched transitionprogram, and 4) significant decline in its sportswear and apparel business.