同时在经营压力较大的情况下，公司更加关注经营的稳健性，库存可控、折扣率基本稳定。10 月以来流水趋势向好，四季度增长有望改善。中长期看，公司销量百万双级的多款跑鞋IP 形成专业产品矩阵，证明品牌的专业度得到市场高度认可，继续看好专业品类拉动成长。我们维持盈利预测，预计2024-2026 年净利润分别为31.5/35.5/38.6 亿元，同比-1.2%/+12.9%/+8.5%。维持17.9-19.2 港元的目标价，对应2024年13.5-14.5x PE，维持“优于大市”评级。Matters:
Company announcement: 1. Retail performance: As of the third quarter ended September 30, 2024, the retail sales volume of Li Ning sales points (excluding Li Ning YOUNG) across platforms recorded a year-on-year decline in the number of units. As far as channels are concerned, offline channels (including retail and wholesale) recorded high unit declines. Among them, retail (direct management) channels recorded a decrease in the number of units, wholesale (authorized dealer) channels recorded a high number of units, and e-commerce virtual store business recorded an increase in the number of units. 2. Number of sales points: As of September 30, 2024, the total number of Li Ning sales outlets in China (excluding Li Ning YOUNG) was 6281, a net increase of 42 over the end of the previous quarter, and a net increase of 41 so far this year. Out of a net increase of 41 point-of-sale sales, there was a net decrease of 14 in the retail business and a net increase of 55 in the wholesale business. The total number of Li Ning YOUNG sales outlets was 1,459, a net increase of 21 compared to the end of the previous quarter, and a net increase of 31 so far this year. 3. Establishment of a joint venture: Li Ning Group established a joint venture with Sequoia Capital through an indirect wholly-owned subsidiary, LN Co., Ltd. The listed company invested HK$58 million, accounting for 29% of the total share capital of the joint venture. The purpose of the joint venture is to exclusively develop and operate the Li Ning brand business overseas (including the sale of Li Ning brand products). The contracting parties intend to use their respective resources to help the joint venture establish independent management capabilities, achieve long-term overseas development of the Li Ning brand, and seek opportunities for future listing.
Guoxin Textile Clothing's opinion: 1) 2024 third quarter: the number of units in Li Ning's bulk cargo flow in the third quarter; the number of units in the third quarter; offline discounts deepened and online discounts narrowed, and the inventory sales ratio increased slightly to 5 year over year; 2) Establishing a joint venture with Sequoia Capital to expand international business, and the listed company holds 29% of the shares; 3) Management guidance: Management maintains low double-digit revenue growth in 2024; 4) Risk warning: consumer demand falls short of expectations; brand image is damaged; systemic risk of the market 5) Investment advice: steady operation, medium- to long-term Continue to be optimistic about the growth space of the professional category. The consumption environment in the third quarter was even weaker than in the first half of the year, and the company's turnover growth rate was affected, but Olay channels and e-commerce channels still performed well; by category, the running category continued to lead the growth, and the core running shoe series and the sports lifestyle soft series continued to perform well.
At the same time, under high operating pressure, the company pays more attention to the soundness of operations, controllable inventory, and basically stable discount rates. The flow trend has been positive since October, and growth is expected to improve in the fourth quarter. In 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. We maintain our profit forecast. Net profit for 2024-2026 is 3.15/3.55/3.86 billion yuan, respectively, -1.2%/+12.9%/+8.5% YoY. Maintain the target price of HK$17.9-19.2, corresponding to 13.5-14.5x PE in 2024, and maintain the “superior to market” rating.
Commentary:
2024 third quarter: In the third quarter, the number of units in Li Ning's bulk sales declined, the number of units in e-commerce sales growth, offline discounts deepened, and online discounts narrowed, and the inventory ratio increased slightly to 5 over the same period last year
1. The number of units of Li Ning's bulk goods declined in the third quarter. Li Ning (excluding children's clothing) achieved the number of units in the overall decline in turnover. Among them, retail/wholesale/e-commerce achieved a decline in middle orders/a decline in high orders/an increase in middle orders, respectively. Direct sales performance is better than wholesale mainly due to the relatively good performance of Ole stores in direct management, and the performance of direct-run regular price stores is similar to that of wholesale stores.
At the end of the third quarter, there was a net decrease of 11 to 1,484 retail stores from the end of the previous quarter, a net increase of 53 to 4,797 wholesale stores compared to the end of the previous quarter, and a net increase of 21 to 1,459 children's clothing stores compared to the end of the previous quarter.
2. Retail discounts and inventory sales ratio: In the third quarter, offline discounts deepened and online discounts narrowed, and inventory sales increased slightly year-on-year. 1) Retail discounts: In the third quarter, due to weak terminal consumption and the decline in offline flows, offline discounts deepened in low single digits year over year; online discounts were still strong, improving by a low single digit year on year. 2) Inventory sales ratio: As of the end of September, the omni-channel inventory sales ratio was 5, slightly higher than the same period last year, and is still at a healthy and manageable level. The storage structure is healthy, and the proportion of new products in 6 months accounts for more than 80%.
Set up a joint venture with Sequoia Capital to expand international business. The listed company held 29% of the shares. The company announced the establishment of a joint venture with LN Co, Founder Co, HongShan Venture, and HongShan Motivation, an indirect wholly-owned subsidiary. The listed company invested HK$58 million, accounting for 29% of the total share capital of the joint venture; Mr. Li Ning, the founder of the company, owns 55% of the shares in total; HongShan Both Venture and HongShan Motivation are investment holding companies founded and managed by Sequoia China. The purpose of the joint venture is to exclusively develop and operate the Li Ning brand business overseas (including the sale of Li Ning brand products). The contracting parties intend to use their respective resources to help the joint venture establish independent management capabilities, achieve long-term overseas development of the Li Ning brand, and seek opportunities for future listing.
This acquisition is an important step for the Group to expand its overseas business and advance its internationalization strategy. The joint venture company owns the right to use Li Ning's IP, and all product design and operation are carried out under the license of the listed company. If the revenue of the joint venture does not fall short of expectations, the listed company has the right to take back part of the shares after 4 years, increase control over the joint venture to ensure good development of overseas business; and also has the right to take back all shares in the joint venture after 8 years.
Management maintains a low number of units of revenue growth in 2024 and a low double digit net interest rate1) Recent performance: The trend has improved since October, and there has been positive growth both online and offline.
2) Revenue: Guidelines for maintaining a low number of units of revenue growth in 2024.
3) Profit margin: Guidelines for maintaining a low double-digit annual net interest rate.
Investment advice: Steady operation, continued to be optimistic about the growth space for professional categories in the medium to long term. The consumption environment in the third quarter was even weaker than in the first half of the year. However, Olay channels and e-commerce channels still performed well; by category, the running category continued to lead growth, and the core running shoe series and the sports lifestyle soft series continued to perform well. At the same time, under high operating pressure, the company pays more attention to the soundness of operations, controllable inventory, and basically stable discount rates. The flow trend has been positive since October, and growth is expected to improve in the fourth quarter. 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.
We maintain our profit forecast. Net profit for 2024-2026 is 3.15/3.55/3.86 billion yuan, respectively, -1.2%/+12.9%/+8.5% YoY. Maintain the target price of HK$17.9-19.2, corresponding to 13.5-14.5x PE in 2024, and maintain the “better than the market” rating.
Risk warning
Consumer demand falls short of expectations; brand image damage; market systemic risk.
