【行业研究报告】李宁-Expectations reset with positive initiatives

21Mar2024
CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdate
LiNing(2331HK)
Expectationsresetwithpositiveinitiatives
WedofindLiNing’sFY23resultsandFY24Eguidanceareinline,eventhough
theviewsfromthemarketarequitemixed.Anyhow,wedoappreciate
management’seffortstofixthebugsellandthebrandingpowerissues,aswell
asresettinginvestors’expectationwithaprudentguidance.Withalltheprogress
mentionedbelow,webelieveLiNingcouldimproveovertimeandturnaround.
Hence,wemaintainBUYwithTPbasedon15xFY24EP/E.Itisnowat13x.
WhiletheFY24Eguidanceisquiteprudent,wedoseesomepositives
initiatives.Themanagementhasmentionedflattishretailsalesgrowth
initiatives.Themanagementhasmentionedflattishretailsalesgrowth
trendYTDin2024,whichisactuallyquiteinlinewithCMBIest.of1%in
1Q24E.ButwearenottooworriedasthisisalsoinlinewiththeFY24E
guidance(MSDlistedcolevelsalesgrowthandlow-teensnetprofitmargin).
Infact,wedoseemanypositivesthatcoulddrivemoderatesalesgrowth
andamoremeaningfulmarginexpansion,namely:1)stabilizationand
turnaroundofthee-commercebusiness,wethinkitislikelyfore-commerce
salestoreaccelerateandhaveanarrowingretaildiscountsinFY24E,after
alowbaseandthecorrectionofvariousbugsellbysomeofitsdistributors,
2)basketballsalesshouldrebound,assupplyrationalizedandstarproducts
graduallybecomemorepopular,whiletherunningandtrainingarestill
sellingverywell(roseby40%and25%inFY23),3)managementofstar
SKUstobecomemorecentralized,the100%targetbyFY24Eisstillon
track,andthisshouldimprovetheoverallproductefficiencyandretail
discounts,4)consolidationofmarketingfunctionsintoonelarger
department,itislikelytoseesomemorefocusedandeffectivemarketing
eventsonwards,5)likelydeclineinimpairmentlossesinFY24E(after
roughlyRMB330mnone-offlossesinFY23).LiNingwillalsoputmore
effortsonexpansionstothelowertiercitiesandrolloutofmorevaluefor
moneyproducts,inourview,whicharebothneutraltotheoverallsalesand
margins.
MaintainBUYbutcutTPtoHK$24.86,basedon15xFY24EP/E(cut
from19xtofactorinaslowdowninsalesCAGR).Wehavereviseddown
ourFY24E/25Enetprofitby8%/13%tofactorin:1)slowersalesgrowth
andguidance,2)loweroperatingleverageduetotheslowSSSG,3)the
impairmentlossesbutahigherGPmargindrivenbybetternewproductand
channelmix.Thecurrentvaluationof13xFY24EP/Emaybenotbetoo
attractivefora8%3-yearsalesCAGR.However,wedothinkaturnaround
islikelyandwitha15%3-yearNPCAGR,thedownsideislimited.Hence,
wemaintainBUYwithaTPbasedon15xFY24EP/E.Thestockistrading
at13xFY24EP/Ewith3%yield.