Event: Li Ning Co. Ltd. 2022Q3, the leader of domestic sports brands, recorded 10-20% growth in the middle of the platform, 20-30% in the middle line and 10-20% in the offline. We continue to be optimistic about the future development of the sporting goods track. Li Ning Co. Ltd., as the industry leader, will give priority to the growth dividend of the industry. Taking all things into consideration, we predict that the EPS of 2022, 2023, and 2024 will be 1.80, 2.23, 2.60 and 30 times PE in 2023, with a target price of 73 Hong Kong dollars, maintaining the "buy" rating.
Summary of the report
At a high base, e-commerce and direct sales still showed a bright performance. In the first half of the year, the epidemic repeatedly affected consumer sentiment and continued to Q3.
Against this background, the company has achieved certain growth in all channels. The retail flow of the whole Q3 platform (excluding Li Ning Co. Ltd. YOUNG) recorded 10-20% growth in the middle, and the offline channel (including direct marketing and wholesale) recorded 10-20% growth in the middle, of which the direct channel recorded 20-30% low growth, the wholesale channel recorded 10-20% low growth, and the e-commerce business recorded 20-30% mid-stage growth. Last year, special events brought a high base, but direct marketing and e-commerce channels still maintained a good growth trend, reflecting the resilience of the brand. In terms of categories, basketball and running performed better than other categories, while footwear performed better than clothing. The flow of the National Day recorded double-digit growth, which was slightly less affected by the epidemic in the early stage of the holiday and improved in the later period due to weather changes. In addition, due to the double National Day holiday in Q4 and other promotional festivals, the demand for stock has increased, so that the inventory level has been improved to a certain extent, but it is still in a healthy and controllable range. It is expected that with the arrival of Singles Day, the company's discount will be further deepened, but the inventory situation is expected to be improved.
Accelerate the layout of high-quality channels and continuously improve channel efficiency as of September 30, Li Ning Co. Ltd. (excluding Li Ning Co. Ltd. YOUNG) had a total of 6101 stores, a net increase of 164over Q2, and a net increase of 166this year, of which 179was a net increase in direct sales and a net decrease in wholesale. Li Ning Co. Ltd. YOUNG has a total of 1238 stores, a net increase of 63 over Q2 and a net increase of 36 this year. Thanks to the adjustment of product structure and the improvement of the efficiency of individual stores, the growth rate of YOUNG in Q3 has reached 50 per cent. In addition, the cooperation between the company and Topsports International Holdings Limited is also going on smoothly, with dozens of stores cooperating in the first half of the year, and the scale is expected to be further expanded in the future. The company will continue to optimize the store structure and strengthen cooperation with high-quality retailers, so as to improve channel efficiency.
Investment advice: the epidemic has repeatedly affected offline consumption, and the entire sports industry is facing inventory risks, but the company says there is less pressure on inventory and will continue to maintain expectations for the whole year. Sports power is an important development strategy of our country, we continue to be optimistic about the future development of sporting goods track, Li Ning Co. Ltd. as the industry leader, will give priority to enjoy the industry growth dividend. Taken together, we predict that the EPS of 2022 PE in 2023 will be $2.60 in 2024, with a target price of HK $73, with a target price of HK $73, maintaining the "buy" rating.
Risk tips: macroeconomic downturn affects sales; competition in the industry intensifies; channel reform is less than expected.