Investment Rating - The report maintains a "Buy" rating for the company, indicating an expected price increase of over 15% in the next 6-12 months [4]. Core Insights - The company reported a revenue of 12.299 billion yuan for H1 FY2026, a decrease of 5.8% year-on-year, with a net profit of 789 million yuan, down 9.7% year-on-year. The interim dividend declared is 0.13 yuan per share, with a payout ratio of approximately 102% [2]. - The consumer environment has impacted sales, but channel optimization and overall growth have mitigated some pressure. The main brands (Nike and Adidas) saw revenue declines of 4.8% and 12.2%, respectively [2]. - The company continues to optimize its store strategy, reducing the number of direct stores to 4,688, a net decrease of 332 stores, while increasing same-store sales area by 6.5% year-on-year [2]. - The user base has grown to 89.1 million, with member sales contributing 92.9% of total sales, and repeat members accounting for about 60% of member consumption [2]. - Online sales have seen double-digit growth, effectively offsetting the decline in offline traffic [2]. Financial Performance - The gross margin for H1 was 41.0%, a slight decrease of 0.1 percentage points, supported by retail business contributions and brand support from Nike and Adidas [3]. - The company has maintained stable sales and management expense ratios, reflecting prudent cost control and flexibility from its omnichannel retail strategy [3]. - Inventory turnover days increased to 150 days, up by 2 days year-on-year, indicating a healthy inventory level [3]. Future Outlook - The company expects stable performance for the full year, with guidance for an increase in net profit margin. Focus will remain on omnichannel retail and operational efficiency improvements [3]. - The recovery of Nike's sales in FY26 Q1 exceeded expectations, suggesting potential for a rebound in the main brand's business [3]. - New brand expansions into running and outdoor segments, including brands like nordaTM and Norrøna, are anticipated to inject new growth momentum [3]. - Earnings per share (EPS) forecasts for FY2026 to FY2028 are projected at 0.21, 0.24, and 0.28 yuan, with price-to-earnings (PE) ratios of 14, 12, and 10 times, respectively [4].

Core Viewpoint - Traditional sports brand distributors are facing significant challenges due to the dual pressures of direct retail and e-commerce, leading to declining sales and profitability [1][2][3] Group 1: Company Performance - Baosheng International (03813.HK) reported a projected revenue of approximately RMB 91.59 billion for the six months ending June 30, 2025, a decrease of about 8.3% year-on-year, with a profit attributable to shareholders of approximately RMB 1.88 billion, down 44.1% [1] - For the fiscal year 2024, Baosheng International's revenue was approximately RMB 184.54 billion, a decline of 8% year-on-year, while profit attributable to shareholders increased by 0.2% to RMB 4.91 billion [1] - Tmall (06110.HK) announced a total revenue decline of 6.64% to RMB 270.13 billion for the fiscal year 2024/25, with net profit dropping by 41.89% to RMB 12.86 billion [2] Group 2: Market Challenges - Both Baosheng International and Tmall are experiencing store closures, attributed to their reliance on traditional distribution channels, which are becoming less viable in a rapidly changing market [2] - The shift in strategy from some international brands towards direct retail and factory outlet stores has further squeezed the margins and customer base of traditional distributors [2] Group 3: Strategic Adjustments - Baosheng International has begun to seek transformation by partnering with new brands, such as Dynafit and XEXYMIX, to diversify its offerings and enter new market segments like yoga apparel and outdoor sports [3] - Tmall is also pursuing diversification by introducing partnerships with niche brands like norda and Mitchell & Ness, as well as outdoor brands like Norrøna [3] - Despite these efforts, the new brands lack the recognition and market scale of established names like Nike and Adidas, posing a challenge for growth [3] Group 4: Market Dynamics - The commercial real estate sector is witnessing a surge in international sports brands opening new stores in China, indicating a competitive landscape where new brands are eager to establish a presence in high-end commercial projects [4]