Matters:
Company announcement: 1. Retail performance: As of the first quarter ended March 31, 2024, Li Ning sales points (excluding Li Ning YOUNG) recorded a low year-on-year increase in retail traffic across the entire platform. As far as channels are concerned, offline channels (including retail and wholesale) recorded a decline in the number of units. Among them, retail (direct management) channels recorded an increase in the number of units recorded, wholesale (authorized dealer) channels recorded a decrease in the number of units; and the e-commerce virtual store business recorded a low growth of 20%-30%. 2. Number of sales points: As of March 31, 2024, the total number of Li Ning sales outlets in China (excluding Li Ning YOUNG) was 6,214, a net decrease of 26 so far this year. Of the 26 points of sale with a net decrease, there was a net increase of 1 in the retail business and a net decrease of 27 in the wholesale business. The total number of Li Ning YOUNG sales outlets is 1,405, a net decrease of 23 so far this year. 3. Same-store sales performance: Based on sales points already in operation at the beginning of the same quarter last year (excluding Li Ning YOUNG), as of the first quarter ending March 31, 2024, same-store sales across the entire platform recorded a year-on-year decline. As far as channels are concerned, retail channels recorded a decline in the number of low units, while wholesale channels recorded a mid-range decline of 10% to 20%. The e-commerce virtual store business recorded a low growth of 20%-30%.
Guoxin Textile's opinion: 1) In the first quarter, Li Ning's large volume of goods increased by a low number of units, a slight year-on-year decline in retail discounts; 2) Management maintained double-digit guidelines for revenue growth in 2024; 3) Risk warning: the epidemic had a serious impact on consumer demand and macroeconomics; vicious industry competition intensified; the company's professional channel development fell short of expectations; a major brand image vicious incident occurred; the systemic risk of the market; 4) Investment suggestions: retail performance was in line with expectations, steady operation, healthy inventory, and continued to look good in the medium to long term Room for category growth.
The company's retail growth performance in the first quarter was in line with expectations. The inventory ratio declined year on year and retail discounts narrowed year on year. The price control effect for new large single products was good, and the health of brand management improved. The company's performance is expected to resume steady growth in 2024 due to favorable factors such as healthy inventory and the end of the investment period in large stores. Looking at the medium to long term, the company's multiple running shoe IPs with sales volume of one million and two have formed a professional product matrix, proving that the brand's professionalism is highly recognized by the market, and it continues to be optimistic about the professional category to drive growth. Maintaining the profit forecast, net profit for 2024-2026 is expected to be $34.1/38.2/4.06 billion, respectively, up 7.0%/12.0%/6.2% year-on-year.
As consumer confidence is still relatively weak, the sector's valuation declined slightly, and the target price was slightly lowered to HK$24.3-25.7 (previously HK$25.8-27.2), corresponding to 2024 PE 17-18x, maintaining a “buy” rating.