Core Viewpoint - Guosen Securities is optimistic about the brand momentum recovery of Li Ning (02331), predicting net profits for 2025-2027 to be CNY 2.4 billion, CNY 2.68 billion, and CNY 3.06 billion respectively, driven by new products and marketing strategies [1] Industry Overview - The Chinese sports outdoor footwear and apparel market is expected to reach CNY 440 billion by 2025, with a current growth rate of around 6% after experiencing fluctuations due to the pandemic [2] - The market structure is changing significantly, with professional sports categories growing faster than fashion sports, and the market concentration decreasing from 76% in 2019 to 68% in 2025 [2] Company Performance Review - From 2019 to 2021, the company experienced significant growth, with net profits reaching CNY 4 billion in 2021, a 5.6 times increase from three years prior [3] - However, from 2022 to 2024, the company faced challenges due to a cooling of the "national trend" and macroeconomic pressures, leading to a slowdown in revenue growth and a decline in net profit margins [3] - By 2025, the company is expected to recover through inventory management and channel optimization, alongside securing core marketing resources for the 2028 Olympic cycle [3] Product Cycle - The company's leading categories have shifted from basketball and sports lifestyle to running, which is expected to grow at a rate of 25%-45% in 2023-2024, becoming the largest category at 34% [4] - Basketball shoes have stabilized in price after a decline, while the running shoe matrix continues to expand, with new technologies expected to drive growth [4] Channel Strategy - Starting in 2024, the company plans to reduce the number of direct stores and control store sizes, which is projected to improve direct operating profit margins from around 10% in 2023 to mid-double digits by the first half of 2025 [5] - The introduction of specialized stores, such as "Dragon Stores" and outdoor stores, aims to tap into niche markets [5] Marketing Efforts - The company plans to increase its marketing expense ratio to low double digits starting in 2025, focusing on securing core Olympic resources and enhancing exposure for new products through events and athlete endorsements [6] - Social media engagement is also being strengthened, with increases in post frequency, follower count, and interaction metrics [6]

Investment Rating - The report maintains an "Outperform" rating for Li Ning (02331.HK) [5][7] Core Insights - The Chinese sports and outdoor footwear and apparel market is projected to reach approximately 440 billion RMB by 2025, with a current growth rate of around 6% [1][15] - The company has experienced significant growth in the past, with net profit reaching 4 billion RMB in 2021, but has faced challenges since 2022, leading to a slowdown in revenue growth [2] - Li Ning is focusing on optimizing inventory and channels, with expectations for a rebound in profitability and brand strength due to new product launches and marketing strategies [2][4] Industry Overview - The sports industry is expanding, with a shift towards niche segments. The market structure is changing, with professional sports categories growing faster than fashion sports [1][15] - The competitive landscape is becoming more fragmented, with the market share of the top 10 brands decreasing from 76% in 2019 to 68% in 2025, indicating a rise in domestic brands [1][24] Company Performance Review - Li Ning's revenue growth slowed to single digits from 2022 to 2024 due to inventory and channel issues, but is expected to recover in 2025 with improved profitability [2][4] - The company has seen a significant increase in its direct channel profit margins, which are expected to rise from around 10% in 2023 to mid-double digits in 2025 [3] Product Cycle and Category Expansion - The company is shifting focus from basketball and lifestyle products, which have seen a decline, to running shoes, which are expected to grow at a rate of 25%-45% in 2023-2024 [3][31] - New product lines, including the "Super Capsule" technology for running shoes, are anticipated to drive growth [3][33] Marketing Strategy - Li Ning plans to increase its marketing expenditure from below 10% to low double digits starting in 2025, focusing on Olympic sponsorships and enhancing visibility in running and basketball categories [4][58] - The company is leveraging social media to boost brand engagement and visibility, with significant increases in post frequency and follower counts [4][70] Financial Forecast - The company is projected to achieve net profits of 2.4 billion RMB, 2.7 billion RMB, and 3.1 billion RMB for 2025, 2026, and 2027, respectively, reflecting a recovery trajectory [8][39] - The estimated reasonable valuation range for the company is between 21.20 and 22.30 HKD, corresponding to a PE ratio of approximately 19-20 times for 2026 [7][39]