Sportswear segment growth rate set to decelerateWe expect Belle's sportswear sales （——55% of total sales） to grow +8.5%yoy for FY17on （1） SSSG set to grow by +6% for FY17, implying a +6% increase in 2HFY17; and（2） + 2%yoy net increase in store metrics. However for long term, we expect itssportswear sales will generally decelerate to +6.5%/3.1%yoy growth in FY18/19F,mainly on the lower SSSG assumption to +5/+2% yoy growth for FY18/19F, at lowerpenetration rate for Nike and Adidas in China.
　　Footwear business- A Big Drag
　　Belle has reported a -13% SSSG drop in footwear business （making up ——45% oftotal FY17F revenue） for 9MFY17, albeit of an easier base of -10% SSSG drop inFY16. We also forecast a -13%/-5%/0% footwear SSSG for FY17/18/19F, based on（1） higher retail discount offered; （2） weaker volume of sales; （3） 50-350 stores netclosure for FY17-19F. One of Belle's competitors Daphne is still facing similar issuesin the industry. We expect its footwear business operating margin further declinesfrom lower gross margin as a result of higher discounting and gradual operatingdeleverage.
　　Dividend yields achievable albeit of margin erosionOn a net basis in FY17, we believe the growth rate from lower-margin sportswearbusiness was not enough to offset the overall margin erosion. On our current FY17forecast, its sportswear GPM of 45% is smaller than its footwear ones at 66.5%.
　　However, Belle currently has c.RMB6.9bn net cash （as up to Aug 2016），corresponding to ——20% of its market cap. On its current healthy cash flow, we seeits 6.5% dividend yield looks achievable for FY17, likely a support to its share price.
　　Distressed valuation; likely a value trapBelle currently trades at 10x FY17 P/E, 80% correction already since its peakvaluation （48x FY17F P/E）， and it is still searching for its trough. Although valuationlooks undemanding, the turnaround in footwear business in near team lookslimited after reporting negative SSSG for 11 consecutive quarters. Our FY17-19Festimates are 1-6% below market consensus, based on weaker SSSG assumption.