Company Overview - The company reported a decline in retail sales for the Li Ning brand (excluding Li Ning YOUNG) in Q3 2025, with a year-on-year decrease in retail revenue in the mid-single digits, while net retail points increased by 33 during the quarter [1] - The weak retail environment in Q3 2025 negatively impacted sales performance, with deeper discounts year-on-year and increased inventory due to preemptive stocking [1] Sales Performance - Retail pressure intensified from July to September 2025, with the direct sales channel benefiting from outlet support and proactive adjustments, resulting in a mid-single-digit decline in retail revenue, which was better than the high single-digit decline in the wholesale channel [1] - Online channel revenue showed a year-on-year increase in the mid-single digits [1] - Key growth drivers included running, fitness, and badminton, with running and fitness achieving low single-digit revenue growth year-on-year, while basketball and lifestyle categories faced relative pressure [1] Inventory and Discount Strategy - To address weak sales, the company proactively adjusted its terminal strategy, resulting in a low single-digit increase in overall channel retail discounts year-on-year, with direct and online channels experiencing a greater increase than wholesale [1] - By the end of September, the inventory-to-sales ratio reached 5-6 times, indicating a healthy inventory structure, with management expressing confidence in returning to a healthy level of 4-5 times by year-end [1] Future Outlook - In Q4 2025, the company plans to focus on the Olympic and sports technology themes to enhance brand momentum and support sustainable growth, while iterating and updating product lines in running, basketball, cross-training, and outdoor categories [2] - The retail side will further balance sales, discounts, and inventory management to maintain a healthy inventory level, despite ongoing sales pressure [2] Earnings Forecast and Valuation - The company maintains its EPS forecasts for 2025 and 2026 at 0.92 and 1.07 CNY, respectively, with the current stock price corresponding to 18 and 15 times the 2025 and 2026 P/E ratios [2] - The company retains an outperform rating and target price of 22.68 HKD, which corresponds to 23 and 19 times the 2025 and 2026 P/E ratios, indicating a 25% upside potential from the current stock price [2]

Investment Rating - The report maintains an "Outperform" rating for Li Ning [3][9] Core Insights - Li Ning's Q3 2025 revenue showed a marginal decline, with e-commerce and children's apparel performing relatively better. The overall revenue decreased in the mid-single digits year-on-year, while online sales grew in the high single digits, and offline sales declined in the high single digits [9] - The company anticipates maintaining its performance guidance for 2025, aiming for flat revenue and a high single-digit net profit margin despite facing some pressures. Upcoming marketing initiatives related to the 2026 Milan Winter Olympics and technology releases are expected to enhance brand competitiveness [9] Financial Summary - Revenue projections (in billion RMB): - 2023: 27.6 - 2024: 28.7 - 2025E: 28.8 - 2026E: 30.1 - 2027E: 31.2 - Year-on-year growth rates: - 2023: 7% - 2024: 4% - 2025: 0% - 2026: 4% - 2027: 4% [8] - Net profit projections (in billion RMB): - 2023: 3.19 - 2024: 3.01 - 2025E: 2.48 - 2026E: 2.64 - 2027E: 2.78 - Year-on-year growth rates for net profit: - 2023: -22% - 2024: -5% - 2025: -18% - 2026: 6% - 2027: 5% [8] Operational Insights - The discount rate has deepened slightly due to increased inventory turnover, with expectations to return to a 4-5 month inventory turnover by year-end. The overall inventory turnover ratio is currently at 5-6 months [9] - The number of sales points (excluding Li Ning YOUNG) increased to 6,132, with a net addition of 33 points in the current year. The company plans to close 10-20 direct stores while increasing wholesale points by 50 [9]