20230320-招银国际-李宁-02331.HK-A_conservative_guidance_but_is_priced_in_9页_1mb

Li Ning (2331 HK) Summary

Core Content

Li Ning (2331 HK) has released its FY22 results and provided FY23E guidance. The company's FY22 sales increased by 14% YoY to RMB 25.8 billion, slightly exceeding the CMBI/BBG estimates. However, net profit only rose by 1% YoY to RMB 4.06 billion, falling short of the CMBI/BBG estimates by 9%. Adjusted net profit, after excluding higher than expected other income and net finance income, could fall by 18% YoY, 16% below the CMBI estimate.

The 4Q22 performance was fair, with a slight decline in retail sales and a healthy inventory-to-sales ratio of 4.2x. Retail discounts widened compared to 3Q22 but remained in line with expectations. The 1Q23E was under pressure, with offline retail sales growth mentioned as MSD/double-digit and online retail sales still recovering, which was disappointing compared to the CMBI estimate of low-teens. However, the trend is expected to improve with a lower base onward.

Main Points

• Sales and Profit Performance:

  • FY22 sales: RMB 25.8 billion (+14% YoY), inline with estimates.
  • FY22 net profit: RMB 4.06 billion (+1% YoY), below CMBI/BBG estimates.
  • Adjusted net profit could fall by 18% YoY, 16% below CMBI estimate.
  • 4Q22 sales declined by low-teens, slightly worse than CMBI estimates.
  • 1Q23E sales were under pressure, but the trend is expected to improve.

• Guidance and Market Reaction:

  • FY23E guidance was a miss, even compared to the bearish view.
  • The share price has already priced in the miss.
  • The company's guidance is conservative, with mid-teens sales growth and a net profit margin of 10%-20%.
  • Despite the soft 1Q23E performance, the company is expected to achieve its guidance.

• Supporting Factors for Guidance:

  • Trade fair orders of 10%+ in 1Q-3Q23E.
  • Resilient ASP growth and strong reception of high-end products.
  • Room for GP margin improvements due to potential recovery of retail discounts.

• Management Concerns:

  • Potential surge in opex, such as A&P expenses, due to the resumption of sports events.
  • Expansion plans for new stores across different segments.

Key Information

• Target Price: HK$66.44, up from the previous target of HK$73.37.

• Current Price: HK$57.70.

• Up/Downside: 15.2%.

• Market Cap: HK$150,974.7 million.

• Shareholding Structure:

  • Viva China Holdings: 10.4%
  • Fidelity Management & Research Co.: 4.4%

• Performance Trends:

  • 1-month return: -19.4%
  • 3-month return: -7.7%
  • 6-month return: -11.1%

• Earnings Revision:

  • FY23E revenue: RMB 29,530 million (down -1.0% from old estimates).
  • FY23E net profit: RMB 4,819 million (down -4.0% from old estimates).
  • FY23E diluted EPS: RMB 1.80 (down -5.5% from old estimates).

• Valuation:

  • P/E ratio (FY23E): 29x (currently trading at 29x FY23E P/E).
  • The new target price is based on a 33x P/E ratio, slightly higher than the 5-year average.
  • The valuation is compared to peers like Anta, Xtep, and others, showing a potential upside.

Financial Summary

• Revenue Growth (YoY):

  • FY21A: 56.1%
  • FY22A: 14.3%
  • FY23E: 14.4%
  • FY24E: 14.0%
  • FY25E: 12.1%

• Net Profit Growth (YoY):

  • FY21A: 133.6%
  • FY22A: -2.3%
  • FY23E: 16.5%
  • FY24E: 18.8%
  • FY25E: 34.3%

• Net Profit Margin:

  • FY21A: 17.8%
  • FY22A: 15.7%
  • FY23E: 16.3%
  • FY24E: 17.0%
  • FY25E: 17.5%

• EBIT Margin:

  • FY21A: 21.3%
  • FY22A: 21.6%
  • FY23E: 19.4%
  • FY24E: 19.8%
  • FY25E: 20.2%

• Gross Margin:

  • FY21A: 50.8%
  • FY22A: 51.0%
  • FY23E: 49.5%
  • FY24E: 49.8%
  • FY25E: 50.0%

Valuation Table

Major Assumptions

Conclusion

Despite the miss in FY23E guidance, Li Ning is still rated BUY with a target price of HK$66.44, based on a 33x FY23E P/E ratio. The company's performance has shown resilience in key areas such as ASP growth and high-end product reception, and the market has already priced in the miss. With the turnaround ahead, the company is expected to meet its guidance. The valuation is considered attractive given the current P/E ratio and potential for future growth.