2024-05-02 02:32Investment Rating - The report downgrades the investment rating of the company to "Hold" [1][11]. Core Views - The growth momentum of the company is weaker compared to its competitors, leading to a diminished valuation attractiveness. The target price is adjusted to HKD 23.0, reflecting a potential upside of 10.0% from the current price of HKD 20.9 [1][4]. Summary by Sections Short-term Performance - The company's online revenue growth in Q1 2024 is at the lower end of 20% year-on-year, similar to Anta, while offline revenue performance lags behind major competitors. Wholesale store revenue has decreased in the mid-single digits year-on-year, and direct retail store revenue has declined similarly [2][3]. Market Share and Brand Strength - Despite strong growth in the running category, the basketball category has seen a year-on-year decline in revenue. Competitors like Anta and 361 Degrees are investing heavily in basketball, suggesting that the company is losing market share in this segment [2][3]. - The company's brand strength may be under pressure, as recent high-profile marketing efforts have not significantly enhanced its brand or product appeal. The company has been lackluster in marketing and new product launches, raising concerns about its competitive edge [2][3]. Market Expectations and Valuation - The market's expectations for the company's net profit in 2024 appear overly optimistic, with significant downside risks. Investors may be underestimating the impact of additional property depreciation, one-time profits from joint ventures last year, and declining interest income on the company's profit margins for 2024 [2][3]. - The current valuation at 15x 2024 PE does not present a compelling investment case, given the projected compound annual growth rate of 8.3% for net profit from 2023 to 2026 [2][3]. Financial Projections - The company's revenue is projected to grow from RMB 27,598 million in 2023 to RMB 28,952 million in 2024, reflecting a year-on-year increase of 4.9%. Net profit is expected to slightly increase from RMB 3,187 million in 2023 to RMB 3,218 million in 2024, a growth of 1.0% [3][7]. - The report highlights a recovery in channel inventory and a healthier inventory age structure, with significant improvements in retail discounts across various channels compared to the second half of 2023 [2][3].