TOPSPORTS(06110) KAIYUAN SECURITIES·2024-10-28 06:40Investment Rating - The investment rating for the company is "Buy" (maintained) [1]. Core Views - The company's FY2025H1 revenue was 13.055 billion HKD, a decrease of 7.9% year-on-year, primarily due to a weak retail environment and a double-digit decline in offline same-store traffic. The net profit attributable to shareholders was 874 million HKD, down 34.7%, mainly due to a decrease in gross margin and an increase in expense ratio due to negative operating leverage. Despite the challenging consumption environment, the company maintains its profit forecast for FY2024-2026, expecting net profits of 1.33 billion, 1.53 billion, and 1.81 billion HKD respectively, with current stock prices corresponding to PE ratios of 12.0, 10.4, and 8.8 times [1][21]. Summary by Sections 1. Profit Pressure from Discounts and Negative Operating Leverage - FY2025H1 revenue was 13.055 billion HKD, down 7.9% year-on-year, attributed to a weak retail environment and a decline in offline traffic. The main brand revenue was 11.351 billion HKD, down 8.1%, while other brands generated 1.609 billion HKD, down 6.5% [1][10][12]. - The company has seen a shift towards online and wholesale revenue, with online direct sales accounting for over 30% of total direct sales [15] 2. Margin Decline and Cost Control - The gross margin for FY2025H1 was 41.1%, a decrease of 3.6 percentage points, primarily due to increased discounts and a higher proportion of online sales. The SG&A expense ratio was 33.1%, slightly up by 0.2 percentage points [16][18]. - Operating profit margin was 8.6%, down 3.6 percentage points, while the net profit margin was 6.7%, down 2.7 percentage points [17][18]. 3. Operational Efficiency and Cash Flow - As of FY2025H1, the company had inventory of 6.12 billion HKD, up 6.4%, with inventory turnover days at 148.3 days, an increase of 7.4 days year-on-year. The net operating cash flow was 2.614 billion HKD, up 2.5%, supporting a high dividend payout ratio of 99.4% [19][20]. - The company continues to focus on efficiency in its offline stores, reducing the number of stores by 6.4% to 5,813, while maintaining single-store sales area growth of 4.8% [13][14]. 4. Profit Forecast and Investment Recommendations - The company maintains its profit forecast for FY2024-2026, expecting net profits of 1.33 billion, 1.53 billion, and 1.81 billion HKD respectively. The current stock price corresponds to PE ratios of 12.0, 10.4, and 8.8 times [21].