2024-08-19 01:43Investment Rating - The report maintains a "Hold" rating for Li Ning (2331.HK) [12][27]. Core Views - The company has faced pressure on retail sales, discounts, channel inventory, and profit margins since the second half of last year. Concerns remain about the weakening brand strength compared to peers, despite a low valuation [12][23]. - The management has lowered the 2024 full-year performance guidance to low single-digit revenue growth and a low double-digit net profit margin, emphasizing a focus on stability rather than aggressive expansion [12][24]. - The report indicates that the retail environment remains challenging, with offline sales continuing to decline and the need for potential discounting to stimulate sales, which may pressure gross margins [12][23]. Financial Performance Summary - For 1H24, revenue grew by 2.3% year-on-year, primarily driven by significant growth in badminton wholesale revenue. Excluding this channel, revenue is expected to decline low single digits [12][23]. - Gross margin expanded by 1.6 percentage points year-on-year, attributed to improvements in retail discounts in e-commerce and direct sales channels. However, the sustainability of this improvement is uncertain given the weak sales environment [12][23]. - Channel inventory increased by mid-single digits year-on-year, with a rising inventory-to-sales ratio, indicating a deterioration in inventory age structure [12][23]. - The company’s overall wholesale revenue declined by 3% year-on-year in 1H24, with a more significant drop in wholesale revenue excluding the professional channel [12][23]. Target Price Adjustment - The target price has been lowered to HKD 14.5, based on an 11x forward P/E for the next 12 months, reflecting the ongoing pressure on short-term performance and the need for more evidence to support a more optimistic price outlook [12][24].