TOPSPORTS(06110) 交银国际证券·2024-12-22 07:02Company Performance and Strategy - The company's Q3 2024 performance met expectations, with retail sales slightly outperforming wholesale, though total sales declined by mid-single digits year-over-year [1] - The company continued to close inefficient and loss-making stores, reducing total store count by high single digits YoY and gross sales area by 4.4% YoY as of November 2024 [1] - Average store size increased YoY, aligning with the company's goal to enhance store image and efficiency [1] - The company aims to maintain stable store numbers in the next year, with net store closures in H2 2024 expected to be no less than in H1 2024 [1] Investment Ratings and Targets - The report assigns a Neutral rating to the company [8] - The target price is set at HKD 3.06, representing a potential upside of 4.7% from the current price of HKD 2.92 [16] - The valuation is based on 11x FY2025-26 P/E, reflecting near-term operational pressures but long-term growth potential in the sports sector [17] Financial Performance and Projections - Revenue for FY2024 is projected at RMB 28.93 billion, a 6.9% YoY increase, but FY2025 revenue is expected to decline by 8.1% to RMB 26.58 billion [19] - Net profit for FY2024 is forecasted at RMB 2.21 billion, up 20.4% YoY, but FY2025 net profit is expected to drop by 33.4% to RMB 1.47 billion [19] - Gross margin remains stable at around 41.7%-42.1% from FY2023 to FY2027, while EBIT margin is projected to decline to 7.1% in FY2025 before recovering to 8.0% in FY2027 [21] - ROE is expected to decrease from 22.5% in FY2024 to 15.7% in FY2025, reflecting operational challenges [21] Operational Highlights - Retail performance in Q3 2024 followed the trend of H1 2024, with professional sports brands showing faster growth while mass leisure brands remained weak [17] - Online channels contributed double-digit growth in Q3 2024, driven by promotional events, offsetting pressure from offline channels due to reduced foot traffic [17] - Inventory management remains a key focus, with 70-80% of inventory being new products as of November 2024, aligning with the company's de-stocking targets [17] Industry and Market Context - The sports sector is seen as having significant growth potential, despite near-term challenges in offline channels [17] - The company's partnership with Nike is highlighted as a key strength, with Nike's new CEO emphasizing efficient retail collaboration and professional sports categories like outdoor and running [17]