Li Ning issued a 22Q3 operating announcement: 1) Retail performance: 22Q3 Li Ning (excluding Li Ning YOUNG) achieved a mid-term increase of 10-20% in total platform turnover. By channel, overall offline/direct management/wholesale/e-commerce achieved 10-20% mid-term growth, 20-30% low growth, 10-20% low growth, and 20-30% mid-term growth, respectively. 2) Same-store sales: 22Q3 Li Ning (excluding Li Ning YOUNG) achieved high single-unit growth in same-store sales across platforms. Direct management/wholesale/e-commerce achieved medium unit growth, high unit volume growth, and 10-20% mid-range growth, respectively. 3) Sales outlets: As of September 30, Li Ning's main brand had 6,101 stores, with a net increase of 166 for the whole year, of which direct management/wholesale had a net increase of 179/-13 respectively; Li Ning YOUNG had 1,238 stores, with a net increase of 36 for the whole year.
Against the backdrop of pressure on the overall sales environment, Li Ning's business situation is healthy, and brand potential continues to improve. Specifically, it is reflected in: 1) Significant increase in net store openings: 22Q3 Li Ning's main brand increased by 164 stores, while the annual net increase of 166 stores was 166, contributing to most net store openings in the third quarter. 2) Inventory control is relatively good: As of 22Q3, the company's inventory-sales ratio was slightly over 4, which is clearly better than that of peers and competitors, and is expected to be below 4 by the end of the year. On the other hand, judging from the inventory structure, inventory under 6 months currently accounts for a relatively high proportion, and continues to improve month-on-month. 3) Q4 Discounts are manageable: Faced with sales pressure, the company's 22Q3 discounts have deepened by a low number of units, and are generally manageable. Q4 will dynamically adjust the discount rate, which is expected to stabilize and fluctuate slightly. Considering the current inventory situation that is superior to that of peers, we think it is unlikely that the discount will be greatly deepened.
The company still maintains the performance guidelines at the beginning of the year, and it is expected that Q4 will still achieve superior turnover performance than peers. This is invaluable in the consumer industry. At the same time, dealers are also confident about the company's future development. On the other hand, the company continues to promote product and category optimization. The sales volume of the 22H1 running and basketball categories bucked the trend by 10% and 30%, higher than the fitness and sports lifestyle categories; footwear revenue increased 47% year-on-year, which is also significantly higher than the growth rate of the clothing category; in terms of new products, the company's 2022 ultra-lightweight 19, has initially been successful, and is expected to launch more products in 2023.
As a representative of the domestic Guochao brand, Li Ning's brand potential continues to increase. Faced with short-term design disputes, the company also issued an announcement and clarification as soon as possible. In the medium to long term, the company aims to build a muscular enterprise, and there is still room for optimization in operational efficiency. At the same time, in line with the development of professional categories and continuous optimization of the product structure, we are confident in the company's medium- to long-term development.
According to the company's announcement, we maintain our profit forecast. We expect the company's earnings per share for 2022-2024 to be 1.79, 2.25 and 2.75 yuan respectively. Referring to comparable companies, maintain 39 times the PE valuation in 2022, corresponding to a target price of 76.23 HKD (1 RMB = 1.09 HKD), and maintain the “buy” rating.
Risk warning: Repeated domestic and international epidemics, increased competition in the industry, product design impacts exceeding expectations, etc.