滔搏：More time is needed despite the attractive yield

Investment Rating - The report downgrades Topsports' rating to HOLD, with a target price of HK$ 2.82, based on a 12x FY2/25E P/E [2]. Core Views - Topsports' 1H25 results were in line with the profit warning, showing a YoY sales drop of 8% to RMB 13.1 billion and a net profit decline of 35% YoY to RMB 874 million [2]. - The outlook for 2H25E is grim, with management expecting sales to drop by high single digits YoY and net profit to plunge by 35% to 45% YoY [2]. - The decline in gross profit margin to 41.1% (down 3.6 percentage points) was larger than expected, but was mitigated by stronger cost control [2]. - The company is experiencing significant challenges due to a drop in offline traffic and increased retail discounts, alongside a higher share of lower-margin e-commerce sales [2]. Financial Summary - Revenue for FY25E is projected at RMB 26.693 billion, reflecting an 8% decline YoY, while FY26E revenue is expected to recover slightly to RMB 27.665 billion [10]. - The net profit for FY25E is estimated at RMB 1.314 billion, a decrease of 41% from FY24, with a diluted EPS of RMB 0.212 [10]. - The gross margin is expected to be 39.1% for FY25E, down from 41.8% in FY24, indicating ongoing margin pressure [10]. - The company declared a dividend per share (DPS) of RMB 16.0, implying a payout ratio close to 100% [2]. Earnings Revision - Adjustments to net profit estimates for FY25E, FY26E, and FY27E are -11%, -13%, and -11% respectively, reflecting weaker-than-expected sales and increased retail discounts [6]. - The report highlights a significant drop in operating profit for FY25E, projected at RMB 1.710 billion, down 39% YoY [10]. Market Context - The report notes that Topsports is heavily reliant on the Nike brand, which is undergoing reforms that may take 1 to 2 years to yield positive results [2]. - The industry is facing destocking risks, with major brands like Nike and Li Ning increasing promotions during peak sales periods [2].