德永佳集团(00321) 　　Textile business dragged by declining orders from U.S. general apparelclients. Revenue fell 28.4% YoY to HKD2,004mn, as sales volume plunged27.9%, despite an ASP increase of 1.3% from rising cotton cost. Gross andEBIT margin fell 1.2ppt/2.3ppt YoY to 21.2%/12.5%. The dismal interimresults of the textile business was mainly attributable to a decline inorders from the U.S. general apparel clients (i.e. GAP, Polo and A&F),despite strong order growth from sportswear customers. Going forward,Texwinca expects PRC customers, such as ANTA and 361 Degree willaccount for a growing percentage of its total revenue, from c.10% in FY16to 15% in FY17E. 　　Retail segment losses narrowed sharply to HKD1.1mn from HKD93mn asat the end of March 2016, which we believed was primarily due todownsizing of store portfolio and declining depreciation expenses, asretail sales were still down by 7.8% YoY. Net sales per store in the PRC/HKfell 5.3%/1.1% YoY. The total number of outlets was cut to 2,789 (PRC:2,726; HK: 63) in 1H17, down 121 YoY or 45 HoH. However, there was aslight increase in the total retail floor area by 0.8% YoY, as a result ofopening larger stores and consolidating smaller shops. Texwinca targets 　　the retail segment to achieve breakeven in FY17E.Aggressive dividend payout. Interim DPS increased by 7.1% YoY toHKD0.30, irrespective of the weak results. This is supported by thetrademark disposal gains, strong OCF and limited capex. We expect thecompany to maintain a payout ratio of c.80% in FY17E. 　　Valuation. We have cut our PT by 7.3% to HKD 5.1, still based on 12.6xPER 1-yr fwd industry peers’ average, after revising down our sales/recurring net profit estimates by 15%/7% for FY17E and 12%/2% forFY18E based on the lower sales volume from the textile segment.