20250715-招银国际-李宁-02331.HK-2Q25_roughly_inline_and_transition_in_progress_7页_1mb

Li Ning (2331 HK) - CMB International Global Markets Equity Research Update (2Q25)

Summary of Key Points

• 2Q25 Performance: Retail sales were roughly inline with expectations (growth ~1-3%), but gross margin likely missed; internal targets not met due to low consumer spending, intensified competition, and weaker offline foot traffic. E-commerce channels showed modest growth, but overall sales below projections.
• H225E Outlook: Cautious due to deteriorated retail sales trends (negative growth in July 2025), potential store opening delays, increased retail discounts, and operational challenges, leading to downward revisions in net profit forecasts.
• Valuation: Target price revised to HK$18.95 (down from HK$19.81), BUY rating maintained. Trading at 15x FY25E P/E, considered undervalued relative to its 10-year average of 25x.
• Rationale: Despite downward revisions due to margin pressures and external headwinds, Li Ning's turnaround efforts in product innovation, branding, and channel upgrades are expected to drive recovery. Bottoming may occur in FY25E or FY26E.

Performance Highlights

• Retail Sales: QoQ: 1%-3% growth, slightly weak compared to internal expectations. Offline channels fell (LSD/MSD), while online e-commerce increased moderately.
• Margins: Gross margin improved QoQ but missed expectations; retail discounts widened in Q25, potentially leading to YoY margin declines.
• Industry Factors: Lagging retail sales in China, intensified competition, and promotional pressures affect the brand.

Financial Analysis

• Earnings Revision: Net profit forecasts revised down by around 4-5% in FY25E, FY26E, and FY27E due to weaker sales outlook and margin compression.
• Valuation Metrics: P/E ratio at 15x FY25E, P/B ratio increasing to 1.4x, EV/Sales at 1.1x for FY25E.
• Forward Metrics: Revenue growth stable at 0.0% FY25E, but operating margin expected to decline due to deleverage. YTD performance shows positive share price trends exceeding long-term averages.

Outlook and Recommendations

• Maintain BUY rating after accounting for risks; turnaround initiatives and government consumption boosts provide support. However, cautious view due to 2H25E challenges.