CHINA LILANG(1234.HK)：A CAUTIOUS 2H25E OUTLOOK BUT A DECENT YIELD

Core Viewpoint - The company has experienced another results miss in 1H25, leading to a more conservative outlook on sales growth and margins despite maintaining FY25E guidance [1][2] Sales Growth and Guidance - The management has reiterated a retail sales growth target of 10% for FY25E, with new retail-related sales growth revised up to 20% from 15% [1] - Store opening targets have been adjusted to a more conservative range of 50 to 100 stores, down from 100 stores [1] - The adjustments are attributed to strong online sales but weak offline performance, consistent with trends in the sportswear and apparel sector in China for FY25E [1] Profitability and Margin Outlook - Despite confidence in achieving 10% sales growth, the company has adopted a more cautious stance on profitability due to several factors [2] - The increase in operating expenses, particularly in staff costs and e-commerce-related expenses, is greater than expected [2] - There are concerns regarding product mix and retail discounts due to inventory buildup, as well as lower-than-expected operating leverage amid a weaker macro environment [2] Valuation and Investment Recommendation - The investment recommendation remains a BUY, but the target price has been trimmed to HK$ 4.42, based on a 10x FY25E P/E [3] - Net profit forecasts for FY25E, FY26E, and FY27E have been revised down by 11% each to account for earnings misses and slower sales growth [3] - The stock is currently trading at 8x FY25E P/E, with an attractive dividend yield of 9% for FY25E supporting the BUY recommendation [3]