3Q22 Results: The results were in line with slightly increased inventory and retail discounts. Li Ning reported mid-teens retail sales growth, with direct retail and Li Ning Young (Kids) showing strong performance.
Guidance: Management maintained its FY22E guidance, but the analysts are more conservative due to industry-level competition and soft economic conditions.
Valuation: The current valuation is at 21x FY23E P/E, which is not too demanding compared to the 5-year average of 30x. The target price was revised down to HK$73.08 based on a 29x FY23E P/E.
Earnings: The earnings summary shows consistent growth in revenue and net profit across the years, with the latest estimates showing a slight increase in FY23E compared to FY22E.
Main Points
3Q22 Performance
Retail Sales Growth: Mid-teens YoY growth in direct retail, wholesale, and e-commerce.
Li Ning Young: Achieved impressive YoY growth of around 50%.
Inventory: Increased slightly to 4+ months, but the mix remains healthy.
Retail Discounts: Continued to rise slightly, but the gap between quarters is narrowing.
Guidance and Outlook
4Q22E: Management is still confident and has not revised its guidance.
FY22E: Guidance remains at high-teens to low-20s sales growth and high-teens net profit margin.
FY23E: Guidance is not yet available, but analysts expect a mixed performance due to both positive and negative factors.
Positive Factors: Distributors are optimistic, ASP is increasing, and cost savings efforts are ongoing.
Negative Factors: Soft economic conditions and ongoing adjustments in China Li Ning and Li Ning 1990.
Valuation and Comparisons
P/E: Current P/E is 21x, with a target P/E of 29x for FY23E.
P/B: Current P/B is 5.4x, with a downward trend.
ROE: ROE is 27.8% for FY23E, showing a slight decline.
Yield: Yield has increased from 0.5% in FY20A to 1.5% in FY23E.
Key Financial Data
Metric
FY20A (RMB mn)
FY21A (RMB mn)
FY22E (RMB mn)
FY23E (RMB mn)
FY24E (RMB mn)
Revenue
14,457
22,572
26,910
31,350
35,802
Net Income
1,698
4,011
4,752
5,514
6,585
EPS (RMB)
0.68
1.58
1.83
2.09
2.50
P/E (x)
65.9
27.8
24.0
21.0
17.6
P/B (x)
12.6
8.9
6.9
5.4
4.3
Yield (%)
0.5
1.1
1.3
1.5
1.8
ROE (%)
19.5
32.9
30.2
27.8
26.5
Net Gearing (%)
Net cash
Net cash
Net cash
Net cash
Net cash
Share Performance
Period
Absolute (%)
Relative (%)
1-month
-12.8
-3.3
3-months
-17.0
2.3
6-months
-11.5
12.6
12-months
-35.4
-2.9
Shareholding Structure
Shareholder
Percentage (%)
Mr. Li Ning & Family
12.79%
BlackRock Inc.
6.13%
JP Morgan Chase & Co
5.21%
FMR LLC.
4.70%
Schroders Plc.
4.70%
Free Float
66.47%
Earnings Revision
Metric
CMBIGM Estimate
Consensus
Diff (%)
Revenue
26,910
27,142
-0.9%
Gross Profit
13,673
13,846
-1.2%
EBIT
5,776
5,830
-0.9%
Net Profit
4,752
4,741
0.2%
Diluted EPS (RMB)
1.83
1.83
0.3%
Gross Margin
50.8%
51.0%
-0.2ppt
EBIT Margin
21.5%
21.5%
Oppt
Net Profit Margin
17.7%
17.5%
0.2ppt
Valuation Band
P/E Valuation Band: Li Ning is trading at 21x FY23E P/E, which is below the sector average of 29x.
Major Assumptions
Metric
FY20A
FY21A
FY22E
FY23E
FY24E
Sales by Segment (RMB mn)
Shoes: 6,338
Clothes: 7,365
Equipment: 754
Others: 0
Total: 14,457
Sales by Segment Growth (%)
Shoes: 4.2%
Clothes: 3.6%
Equipment: 11.7%
Others: n/a
Total: 4.2%
Sales by Channel Growth (%)
Franchises: 0.9%
Self-owned: -9.8%
E-commerce: 29.7%
International: -16.7%
Total: 4.2%
OP Margins (%)
15.2%
22.8%
21.5%
21.4%
21.7%
Effective Tax Rate (%)
24.4%
24.7%
23.0%
22.0%
20.0%
Net Profit Margins (%)
11.7%
17.8%
17.7%
17.6%
18.4%
Financial Summary
Income Statement
Metric
FY20A (RMB mn)
FY21A (RMB mn)
FY22E (RMB mn)
FY23E (RMB mn)
FY24E (RMB mn)
Revenue
14,457
22,572
26,910
31,350
35,802
Gross Profit
7,094
11,969
13,673
16,019
18,359
Net Profit
1,698
4,011
4,752
5,514
6,585
Cash Flow Summary
Metric
FY20A (RMB mn)
FY21A (RMB mn)
FY22E (RMB mn)
FY23E (RMB mn)
FY24E (RMB mn)
EBIT
2,196
5,136
5,776
6,717
7,766
Net Cash from Operating
2,763
6,165
5,433
6,582
7,646
Conclusion
Li Ning has shown resilience in its performance, with strong growth in direct retail and Li Ning Young.
Despite the company's confidence in 4Q22E and FY22E guidance, the analysts are more cautious due to the competitive environment and economic conditions.
The current valuation is considered reasonable, and the target price reflects a conservative P/E multiple.
The company's financials show a steady improvement in net profit and EPS, with a focus on cost savings and increasing ASP to offset retail discounts.