20210218-招银国际-李宁-02331.HK-Solid_brand_elevation_and_reform_plan_10页_1mb

Li Ning (2331 HK) Equity Research Summary

Core Content

This report provides an update on Li Ning's performance and future outlook, highlighting the company's solid brand elevation and reform plan. The analysis suggests that Li Ning has outperformed its peers in the second half of 2020, driven by improved marketing, higher average selling prices (ASP), increased gross profit (GP) margins, and effective cost control. The report also outlines the company's strategic initiatives and financial projections for FY20E, FY21E, and FY22E.

Main Points

• Performance in 2H20E: Li Ning outperformed peers due to better marketing, higher ASP and GP margins, and effective cost control.
• 4Q20E Growth Expectations: Retail sales growth is expected to accelerate to 11% YoY, outperforming competitors like Xstep and Anta.
• Drivers of Growth:
  • Rising popularity of "China Li Ning" products.
  • Successful digital marketing strategies.
  • Enhanced brand building through collaborations.
  • Strong e-commerce sales growth, estimated at 40–50% during Nov-Dec 2020.
• FY21E Outlook: Optimistic for 15% retail sales growth, supported by robust online sales, brand elevation, and expansion of the "China Li Ning" line.
• Reforms: The new CEO has implemented reforms such as trimming SKUs, sizes, and fabrics, leading to improved store productivity and efficiency.
• Earnings Revisions: CMBIS has revised up its net profit estimates for FY20E, FY21E, and FY22E by 4.1%, 5.5%, and 9.2%, respectively, due to faster online sales, better GP margins, and operating leverage.
• Target Price: The target price has been raised to HK$67.66, based on a 48x FY22E P/E ratio, which is considered attractive compared to the current 41x FY22E P/E.
• Valuation Metrics:
  • Revenue is expected to grow from RMB 14,946 million (FY20E) to RMB 21,667 million (FY22E).
  • Net profit is projected to increase from RMB 1,666 million (FY20E) to RMB 2,946 million (FY22E).
  • EPS is forecasted to rise from RMB 0.66 (FY20E) to RMB 1.17 (FY22E).
  • Core net profit (NP) is expected to grow by 31.7% YoY in FY20E, 40.7% YoY in FY21E, and 25.7% YoY in FY22E.
  • Gross margin is projected to increase from 49.7% (FY20E) to 51.1% (FY22E).
  • EBIT margin is expected to rise from 14.3% (FY20E) to 16.0% (FY22E).
  • Net profit margin is anticipated to increase from 11.1% (FY20E) to 13.6% (FY22E).

Key Financial Projections

Share Performance and Valuation

• Market Cap: HK$132,173 million.
• Average 3-Month Turnover: HK$518.92 million.
• 52-Week High/Low: HK$57.6 / HK$14.8.
• Total Issued Shares: 2,489.1 million.
• Shareholding Structure:
  • Mr. Li Ning & Family: 14.23%
  • FMR LLC.: 4.94%
  • Schroders Plc.: 4.94%
  • Blackrock Inc.: 4.84%
  • Free Float: 70.05%
• Share Performance (12-Month):
  • Absolute: 133.1%
  • Relative: 110.9%
• Current Price: HK$53.10.
• Target Price: HK$67.66 (+27.4% upside).
• Valuation Metrics (FY22E):
  • P/E: 40.6.
  • P/B: 9.2.
  • Yield: 0.6%.
  • ROE: 23.2%.

Comparison with Peers

Strategic Initiatives

• "China Li Ning" Expansion: Plans to open 100 new stores per year in FY21E–FY22E, compared to 80 in FY20E.
• E-commerce Growth: Expected to continue growing, with 40% growth in Jan 2021 despite a high base last year.
• Brand Elevation: Improved sales of higher-priced items by tapping into a customer base similar to FILA.
• Cost Control: Effective management of operating expenses, including minimal advertising and promotion (A&P), travel expenses, and rental reliefs.

Conclusion

Li Ning is viewed as a strong buy with a raised target price of HK$67.66, reflecting confidence in its reform plan and growth prospects. The company's strategic focus on brand elevation, e-commerce expansion, and cost control is expected to drive strong sales and profit growth in the coming years, supported by a favorable valuation and robust financial performance.