20250331-招银国际-李宁-02331.HK-Conservative_guidance_but_quite_expected_8页_1mb

Li Ning (2331 HK) Summary

Core Content and Key Insights

• Company Overview: Li Ning is a leading Chinese sportswear brand, with recent performance and guidance analyzed by the analyst team.
• FY24 Performance: The FY24 results were in line with market expectations, and 4Q24 operating numbers slightly exceeded expectations.
• FY25E Guidance: The company has provided conservative guidance for FY25E, with flat sales growth and a stable HSD net profit margin. The guidance includes potential impairment losses from investment properties and store closures.
• Category Growth: In FY24, running and basketball categories showed strong growth of 25% and 21%, respectively, while training and lifestyle categories grew at 6% and 6%.
• Trend in 1Q25E: Retail sales growth in 1Q25E is trending better, indicating a positive outlook despite some weakening in March due to unfavorable weather.
• Earnings Revision: Net profit forecasts for FY25E and FY26E have been revised down by 23% and 20%, respectively, due to slower retail sales growth, higher A&P expenses, and impairment losses.
• Valuation: The stock is currently trading at 16x FY25E P/E, which is not considered cheap. However, the analyst maintains a BUY rating, with a new target price of HK$19.81 (up from HK$19.58).
• Valuation Table: Li Ning's valuation is compared with peers, showing it has a P/E of 15.6x and 13.5x for FY25E and FY26E, respectively, with a P/B of 1.5x and ROE of 12.0%.

Main Points

• Performance Trends:

  • FY24 sales increased by 4% YoY to RMB 28.7bn.
  • Net profit dropped by 5% YoY to RMB 3.0bn, but adjusted net profit (excluding impairment losses) could have increased by 5%.
  • 4Q24 performance was better than expected, with a rebound in retail sales growth and an improved inventory-to-sales ratio.
  • 1Q25E sales are trending better, with positive growth across all channels, although the trend weakened in March due to adverse weather conditions.

• Guidance and Outlook:

  • Li Ning outlines conservative FY25E guidance, expecting flattish sales growth and a stable HSD net profit margin.
  • The company plans to invest more for the future, which may impact short-term profitability.
  • The analyst believes that the worst should have already passed and the trend is turning around, justifying the maintenance of the BUY rating.

• Segment Performance:

  • Sales by segment are expected to remain stable or slightly improve in FY25E, with a focus on maintaining growth in running and basketball while improving the lifestyle segment.
  • The company is targeting stable or mild improvements in GP margin, driven by retail discount improvements and a better channel mix.
  • OP margin is expected to fall due to increased A&P, R&D, and talent acquisition expenses, which may account for 10%+ of total sales in FY25E.

• Valuation and Price Performance:

  • The current price is HK$17.16, with a target price of HK$19.81 (15.4% upside).
  • The stock has underperformed in the past 6 months with a -8.0% return, but the analyst remains optimistic.
  • The analyst believes the valuation is relatively high, but the trend in 1Q25E is encouraging and supports the BUY rating.

Key Information

• Earnings Summary:

  • Revenue: RMB 27,598 (FY23A), RMB 28,676 (FY24A), RMB 28,676 (FY25E), RMB 30,518 (FY26E), RMB 32,485 (FY27E).
  • Net profit: RMB 3,187.0 (FY24A), RMB 2,673.4 (FY25E), RMB 3,077.1 (FY26E), RMB 3,560.0 (FY27E).
  • EPS (Reported): RMB 1.23 (FY23A), RMB 1.17 (FY24A), RMB 1.03 (FY25E), RMB 1.19 (FY26E), RMB 1.38 (FY27E).
  • P/E: 13.1 (FY23A), 13.8 (FY24A), 15.5 (FY25E), 13.5 (FY26E), 11.6 (FY27E).
  • P/B: 1.7 (FY23A), 1.6 (FY24A), 1.5 (FY25E), 1.4 (FY26E), 1.4 (FY27E).

• Shareholding Structure:

  • Viva China Holdings: 10.4%
  • GIC Pte Ltd.: 5.0%

• Stock Data:

  • Market Cap: HK$44,899.9 million
  • Average 3-month Turnover: HK$479.8 million
  • 52-week High/Low: HK$24.05/HK$12.92
  • Total Issued Shares: 2,616.5 million

• Share Performance:

  • 1-month: 0.5% (Absolute), -1.6% (Relative)
  • 3-month: 3.6% (Absolute), -11.1% (Relative)
  • 6-month: -8.0% (Absolute), -19.0% (Relative)

• Valuation Table:

  • Li Ning (2331 HK): BUY, 12m TP HK$19.81, P/E 15.6x (FY25E), 13.5x (FY26E), P/B 1.5x (FY25E), ROE 12.0% (FY25E)
  • Anta Sports (2020 HK): BUY, 12m TP HK$120.86, P/E 17.1x (FY25E), 15.2x (FY26E), P/B 2.9x (FY25E), ROE 27.6% (FY25E)
  • Xtep (1368 HK): BUY, 12m TP HK$7.20, P/E 9.7x (FY25E), 8.8x (FY26E), P/B 1.2x (FY25E), ROE 14.1% (FY25E)
  • 361 Degrees (1361 HK): BUY, 12m TP HK$5.97, P/E 6.6x (FY25E), 5.9x (FY26E), P/B 0.7x (FY25E), ROE 12.4% (FY25E)
  • Topsports (6110 HK): BUY, 12m TP HK$4.51, P/E 14.0x (FY25E), 11.7x (FY26E), P/B 2.0x (FY25E), ROE 18.0% (FY25E)
  • Pou Sheng (3813 HK): NR, P/E 5.3x (FY25E), 4.6x (FY26E), P/B 0.3x (FY25E), ROE 5.7% (FY25E)
  • China DX (3818 HK): NR, P/E 5.3x (FY25E), 4.6x (FY26E), P/B 0.3x (FY25E), ROE 5.7% (FY25E)
  • International peers (Nike, Adidas, Puma, etc.) have varying P/E and P/B ratios, with some showing lower valuations.

Conclusion

The analyst maintains a BUY rating for Li Ning despite its current high valuation, citing the company's improved performance in 1Q25E and the expectation that the worst is behind it. The company's conservative guidance for FY25E is expected to be largely inline with consensus, and the analyst believes that the trend is constructive. The stock is trading at 16x FY25E P/E, which is not considered too cheap, but the analyst is optimistic about the future. The company is expected to maintain growth in running and basketball while actively improving the lifestyle segment. The analyst also highlights the potential for better channel mix and reduced store closure-related impairments to support future performance.