We still think Topsorts's turnaround is solid despite the macro uncertainty. Sales growth acceleration should be from the new products and better marketing while margin improvement should be from self-initiated efficiency gains.

3Q24 retail sales growth was at low-teens, in line with expectations but the underlying fundamentals are good. Topsports' total retail sales growth (including both retail and wholesale operations) in 3Q24 (ending Nov 2023) was at low-teens, slightly below CMBI est. of 15%. However, given the weak industry environment and sentiment (esp. after Li Ning and Xtep's recent cuts in guidance and their needs of more de-stocking), we believe such a result is in line with the market expectation. In fact, we do find the growth quality in 3Q24 high, because of: 1) the strong rebound (was a LSD decline in 2Q24), 2) balanced improvements from all brands (retail sales growth for leading/lagging brands had both improved to high-teens/ +ve MSD in 3Q24, from just low-teens/ -ve MSD in 1H24), 3) its better than peers' performance (way faster than Pou Sheng's 7%%), 4) resilient e- commerce sales growth (also at teens level, similar to the offline growth), and 5) excellent store productivity (SSSG is also at teens level and similar to the offline growth).

We still think the outlook for Topsports is solid, despite industry headwinds. We are certainly concerned about the industry performance in 4Q23E, given the fall in purchasing power, weak consumer sentiment and scale-up in inventory de-stocking, echoed by the underperformance of some domestic brands. However, thanks to Topsports' healthy inventory position and resilient brand equity, we believe it is able to optimize the timing and needs to boost sales growth and do promotions. Therefore, in terms of outlook, we are still confident on Topsports to maintain its rapid growth (CMBI est. of 8% retail sales growth in 4Q24E, 9%/12% listed-co level sales growth in 2H24E/FY25E), thanks to: 1) stable growth in Dec 2023 (similar to the level of Nov 2023, according to management), 2) the late CNY in 2024 (a longer peak season of around 3 weeks should drive better growth), 3) reasonably successful new products launched in 1Q-4Q24E (since the sell- through rate had increased YoY), 4) resumption of growth in gross selling area (managed to increase by 0.5% QoQ, vs flattish in 2Q24 and 1.7% drop in 1Q24), likely to accelerate in FY25E when closures of Adidas NEO stabilize, and 5) increased efforts in marketing (leveraging various sports events and competitions).

Maintain BUY and TP of HK$9.23, based on 18x FY2/25E P/E (unchanged). The stock is trading at 12x FY2/25E P/E, which is highly attractive, given a 4-year avg. P/E of 13x and 21% 3-year NP CAGR during FY23-26E.