361 Degrees's FY23 result was roughly inline but we are delighted to see its dividend payout ratio resumed to 40%. Going forward in FY24E, we are still confident, thanks to: 1) its wholesale business nature (supported by 80%+ sell through rate), 2) resilient retail sales growth (20%+ in Jan-Feb 2024) and 3) solid product and branding upgrades around running and basketball.

We do appreciate 361 Degrees's wholesale business nature, because the growth could be more certain. According to the management, the trade fair sales growth was roughly between 15% to 20% for 1Q/2Q/3Q24E, and together with the impressive sell through rate for 1Q/2Q/3Q23, at 80%+, we are reasonably confident on 18%/ 22% sales/ NP att. growth in FY24E.

We are still quite confident on its retail end performance, based on many aspects of the business. We do see lots of positives in 361 Degrees, in order for us to stay confident in FY24E amid such a weak macro environment. In terms of products, 361 Degrees' running and basketball products sales growth was as fast as 20%+ and 40%+ in FY23, which are all driven by the solid upgrades in product quality, in our view. We do expect the momentum to continue. It is also foreseeable that a new series of basketball shoes around Nikola Joki? will be launched (perhaps in FY25E). Moreover, the Company is also expanding its product categories, such as: 1) the female fitness wear, 2) ski board series, 3) badminton and even 4) football products, etc. In terms of marketing, 361 Degrees introduced a new self-owned IP called "Women's Fitness Gym" in 2023, and it should generate more positive interaction with customers and fans. In terms of channel, e-commerce sales remained highly robust (performance during the International Women Day was strong and the internal guidance for FY24E has been raised for a few times, supported by decent numbers in Jan -Feb 2024). We also think that offline business is one of the key focus for management in FY24E. While we are comfortable with the rapid store expansions in FY22-23 and the surge in 9th generation store mix, the sales per store growth (or SSSG) is still highly critical. Therefore, we do concur with management's plan to improve its sales productivity through various areas like improving the items per ticket and members management.

Maintain BUY with TP of HK$ 6.25. We revised up FY24E/ 25E net profit by 3.4%/ 3.1% to factor in: 1) solid kids and e-commerce sales, 2) beat in store expansions and 3) less-than-expected staff costs. Our new TP is based on 10x FY24E P/E. We still think current valuation is fairly attractive, at 8x FY24E P/E (25% discounts to industry average), plus a yield of 4.5%.

The retail sales trend YTD was still fairly resilient. The management also mentioned briefly that the retail sales growth for adult/ kids/ e-commerce in Jan and Feb 2024 were roughly at 10% to 15%/ 20%+/ 30%+. Moreover, the retail discounts was at 27% off, slightly narrowed by 1ppt QoQ. Inventory to sales ratio was at 4.5 to 5 months, similar to 4Q23.

Result was largely inline while dividend was a slight beat. In FY23, 361 Degrees' sales increased by 21% to RMB 8.4bn while net profit rocketed by 29% to RMB 961mn, both were largely inline with BBG and CMBI est.. In terms of segment, adult/ kids/ e-commerce sales growth were 17%/ 36%/ 38% YoY. In terms of margins, GP margin expanded by 0.6ppt to 41.1%, thanks to more online sales and decent ASP increases for footwear products. NP margin increased by 0.7ppt to 11.4%, mostly due to the absence of provisions (for receivables and inventory), which partly offset the surge in A&P expenses (for Asian games and etc.). We think the bright spot is certainly the jump in payout ratio to roughly 40% (vs CMBI est. of 30%), that is equivalent to a 4.5% dividend yield, based on current market cap. While the inventory days and receivable days remain largely stable (both added 2 to 93 and 149), the payable days had shortened by 11 to 110 days, and the overall CCC had improved to 132 days.