Zhao Yin Guo Ji·2024-08-19 06:23Investment Rating - The report maintains a BUY rating for Li Ning, with a trimmed target price of HK$ 16.18, based on a 12x FY24E P/E, down from 15x due to industry de-rating [2][7]. Core Insights - Short-term risks include potential retail discounts, trade fair order adjustments, unfavorable channel mix, operating deleverage, and fixed operating expenses. However, long-term value is still recognized, particularly with an ex-cash FY24E P/E of 5-6x [2][7]. - The FY24E guidance has been revised down to low-single-digit sales growth from mid-single-digit, with a low-teen net profit margin maintained. Retail sales were weak, falling by high-single digits in July to mid-August 2024 [2][7]. - The report indicates a cautious outlook for 2H24E, with retail sales growth forecasts cut to -4% for 3Q24E and +6% for 4Q24E, reflecting a weakening recovery rate compared to 2019 [2][7]. Financial Summary - Revenue for FY24E is projected at RMB 28,162 million, with a YoY growth of 2%. Operating profit is expected to be RMB 3,659 million, and net profit is projected at RMB 3,103 million, reflecting a decrease of 8.8% compared to previous estimates [8][9]. - The gross profit margin is expected to be 49.0% for FY24E, with EBIT margin at 13.0% and net profit margin at 11.0% [9][11]. - The company reported a net profit of RMB 1.96 billion for 1H24, a 7% YoY decline, but beat estimates due to better-than-expected gross profit margin expansion [7][10]. Sales and Channel Performance - In 1H24, sales growth for e-commerce was 11%, while direct retail grew by 3%, and wholesale declined by 2%. The direct retail growth was primarily driven by strong performance in the outlet channel [7][10]. - The report highlights a decline in retail sales, attributed to weaker macro conditions, rising competition, and ineffective marketing strategies. The retail sales to inventory ratio was healthy at 3.9x in 1H24 [7][10]. Earnings Revision - The report revises down FY24E/25E/26E net profit estimates by 9%/12%/13% due to weaker retail sales growth, less improvement in retail discounts, and higher advertising and promotion expenses [7][8]. - The stock is currently trading at 10x FY24E P/E and 9x FY25E P/E, with a long-term positive view maintained despite short-term challenges [7][9].