Core Insights - The company experienced a 5.8% year-on-year decline in revenue for the first half of fiscal year 2026, totaling 12.3 billion RMB, primarily due to fluctuations in consumer demand for sports products and offline foot traffic [1] - Despite operational pressures, the company managed to maintain a gross margin of 41.0%, only slightly down by 0.1 percentage points year-on-year, aided by increased contributions from retail business and brand support [1] - The management has maintained guidance for net profit to remain flat year-on-year, with an improvement in net profit margin, while recent sales trends are expected to mirror those of the second quarter [1] Brand Performance and Strategy - The main brand saw a year-on-year decline of 4.8%, outperforming other brands which dropped by 12.2%, indicating resilience in the core brand performance [2] - The company is actively collaborating with main brands to enhance online and offline channel management and improve overall discount levels [2] - The company plans to deepen its focus on running and outdoor segments, developing new brands such as norda, soar, Ciele, and Norrna [2] Retail Transformation - The company continues to adjust its store structure and improve quality, with a net reduction of 332 direct-operated stores to 4,688 as of August 2025, alongside a 14.1% decrease in total sales area [2] - Despite the decline in offline foot traffic, the company reported double-digit growth in online retail business, exploring a multi-scenario operational model combining offline stores and online presence [2] - The management is implementing stricter standards for new and renovated stores, focusing on larger store sizes with more restrained renovation investments [2]

Investment Rating - The report maintains a "Neutral" rating for the company, with a target price of HKD 2.98, indicating a potential downside of 14.4% from the current price of HKD 3.48 [1][2][11]. Core Insights - The company is experiencing sales pressure in the first half of the 2026 fiscal year, with a revenue of RMB 12.3 billion, reflecting a year-on-year decline of 5.8%. This decline is attributed to fluctuations in consumer demand for sports products and foot traffic in physical stores [6]. - Despite operational challenges, the company has managed to control gross margin and expense ratios effectively, with a gross margin of 41.0% and a net profit margin of 6.4% for the first half of the fiscal year [6]. - The management has set guidance for the full year, aiming for net profit to remain flat year-on-year, with expectations for improved net profit margins [6]. Financial Overview - Revenue projections show a decline from RMB 28,933 million in 2024 to RMB 25,856 million in 2026E, with a year-on-year growth rate of -6.6% in 2025 [5][13]. - Net profit is expected to recover slightly from RMB 1,285 million in 2025 to RMB 1,299 million in 2026E, with a net profit margin of 5.0% [5][14]. - The company has a dividend yield of 6.6% for 2026E, which is expected to provide some downside protection for the stock price [6]. Brand Performance and Strategy - The main brand's performance has shown resilience, with a decline of 4.8% compared to a 12.2% drop in other brands. The company is focusing on optimizing brand structure and enhancing online and offline channel management [6]. - The company plans to deepen its focus on running and outdoor segments, with new brand developments and the opening of the first ektos running store [6]. Store and Online Strategy - The company continues to adjust its store structure, with a net reduction of 332 direct stores to 4,688 as of August 2025, and a total sales area decrease of 14.1% [6]. - Online retail business has seen double-digit growth year-on-year, indicating a shift towards a more integrated retail model combining offline and online strategies [6].