2025-08-31 16:21Summary of Li Ning Conference Call Company Overview - Company: Li Ning (2331.HK) - Industry: China/Hong Kong Consumer - Market Cap: US$6,323 million - Current Price: HK$19.70 - Price Target: HK$25.00, representing a 27% upside from the current price [7][20] Key Points Financial Performance and Guidance - Sales Growth: Li Ning's sales growth is influenced by China's macroeconomic environment, with conservative assumptions baked into forecasts [1][3] - 2025 Guidance: The company maintains guidance for stable sales and high single-digit net profit margin (NPM) for 2025, targeting over 10% NPM in the long term [9][22] - 1H25 Performance: Reported net profit (NP) decreased by 11% year-over-year, with a projected double-digit decline in reported NP for 2025 [3][22] - Gross Profit Margin (GPM): GPM contracted by 0.4 percentage points to 50% in 1H25, with expectations of further contraction in 2H25 due to deeper discounts [3][20] Market Position and Competitive Landscape - Market Share: Li Ning holds a leading market share in basketball in China, with plans to launch new shoes at a lower price to expand its customer base [10][11] - Product Categories: Professional products contributed over 60% of total revenue in 1H25, with running products showing a CAGR of over 20% compared to the industry average of ~9% [10][11] - Challenges: Bears argue that Li Ning's slower growth compared to peers, single brand focus, and fierce competition hinder brand differentiation [2][3] Operational Strategy - Cost Management: The company has improved control over advertising and promotion (A&P), staffing, and leases, leading to a core operating profit (OP) beat in 1H25 [4][21] - Organizational Changes: Li Ning has established category business units to drive growth, although this may introduce inefficiencies in merchandising and marketing [11][12] Marketing and Brand Strategy - Marketing Initiatives: Li Ning's partnership with athletes, including a deal with COC and sponsorship of NBA player Hansen Yang, aims to enhance brand storytelling and restore brand momentum [5][10] - Product Mix Improvement: The company is focusing on enhancing its product mix, particularly in functional apparel, to better align with market demands [10][11] Financial Estimates and Valuation - Earnings Estimates: Adjusted NP estimates for 2025 are projected at Rmb3,345 million, reflecting a 17% increase from previous estimates [24][25] - Valuation Metrics: Li Ning is currently trading at 16-17x 2025 P/E, which is not considered cheap by some analysts [3][22] - Impairment Losses: Impairment from investment properties is expected to continue affecting NP through 2027, with a projected NPM of 9.4%, 10.2%, and 11.1% for 2025-2027 [22][24] Risks and Considerations - Operational Expenses: Operating expenses are expected to rise in 2H25 due to Olympic-related costs and higher labor costs from stock-based compensation [12][20] - Tax Rate: The tax rate increased to 33% in 1H25, influenced by higher withholding tax and non-cash charges, with expectations of a continued rise in 2025 [14][20] Conclusion - Li Ning is positioned for potential margin recovery and growth, supported by strategic marketing initiatives and improved operational efficiency. However, challenges from macroeconomic conditions and competitive pressures remain significant factors to monitor [1][4][22]