JNBY DESIGN(3306.HK)：SALES TREND IMPROVED BUT GUIDANCE IS PRUDENT

Core Viewpoint - The company's FY25 results were in line with expectations, but concerns remain regarding sluggish core brand sales growth and high inventory levels. The FY26E guidance is conservative despite encouraging retail sales growth in Jul-Aug 2025, leading to a maintained BUY rating due to attractive yield [1][6]. Sales Performance - Retail sales growth in Jul-Aug 2025 improved significantly, moving from negative in Q1 2025 to double-digit growth, driven by factors such as a low base, strong outlet performance, enhanced member management, and new product launches [2][4]. - In FY25, total sales increased by 5% YoY to RMB 5.55 billion, with e-commerce sales growing robustly at 18%. However, self-operated store sales dropped by 6% [7]. Profitability Outlook - The management's FY26E guidance indicates a need for high single-digit sales growth to meet long-term targets, with a conservative net profit margin forecast. Long-term targets include a gross profit margin of over 65% and a net profit margin of over 15% [3][6]. - The net profit for FY25 rose by 6% YoY to RMB 898 million, with a GP margin of 65.6%, slightly below expectations. The effective tax rate was better than anticipated at 26.3% [7]. Inventory and Brand Dynamics - The company faces challenges with high inventory levels, which increased by 24% YoY. The growth momentum is concerning as new brands are driving sales growth more than the core brand [7]. - Management has indicated that there is flexibility to boost sales through retail discounts, as the net profit margin has exceeded long-term targets [4]. Future Projections - The company maintains a conservative outlook for FY26E, with potential for net profit growth acceleration if same-store sales growth improves and operating leverage is realized. However, caution is advised due to a weakening macro environment [5][6]. - The target price has been raised to HK$23.30, based on a 12x FY26E P/E, reflecting a slight revision downwards in net profit forecasts for FY26E and FY27E [6].