Key points of investment

24Q3 main brand turnover is under pressure as scheduled:

24Q3 Logistics Li Ning's main brand Yushui (excluding YOUNG) had a slight decline in the number of units in the first half of the year. Among them, the number of units in the offline decline was higher and the number of units growing online; in offline channels, the number of units in the decline in direct management and the number of units in wholesale fell higher. The advantages of direct management over wholesale were mainly related to the better performance of the Ole channel.

Judging from the quality of business, of the 24Q3 retail discounts, offline discounts deepened the number of units and online discounts improved the number of units. The Q3 inventory sales ratio was around 5 months, an increase from 3.9 months in the interim report, which is related to seasonal stocking of Double Eleven and winter clothes.

Judging from the volume-price split, the number of units in Q3 ASP declined (due to the increase in the share of cost-effective products and deepening discounts), and the volume declined by small number of units; looking at the flow rate by category, similar to the 24H1 trend, the running sector continued to lead the way. Running growth in Q3 was high by double digits, and basketball remained volatile.

Since October, we have seen an improvement in the flow rate:

Benefiting from the consumption stimulus policy and cooling, it is expected that traffic will improve since October, offline and online growth will resume positive, and the pressure on offline passenger flow will also ease somewhat from month to month. We expect continued improvement in the double 11 and fourth quarters compared to Q3.

Establishing joint ventures to promote international business development:

The company announced that it cooperated with Sequoia to establish a joint venture to operate the international business of the Li Ning brand. Among them, Li Ning Company/Mr. Li Ning/Sequoia each invested 58 million/ 52 million/ 90 million Hong Kong dollars and obtained 29%/26%/45% shares in the joint venture

The main reasons for the cooperation are: 1) the existing management team can focus on domestic business; 2) considering the complexity of the international market business environment and differences in business models, introducing external forces and experience to promote the flexible and rapid development of international business. In the future, Li Ning brand's international business is expected to expand one after another in Southeast Asia and the Belt and Road.

Profit Forecast and Valuation:

The company's revenue for 24/25/26 is estimated to be 27.9/29.4/30.8 billion yuan, +1.2%/+5.1%/+4.9%, and net profit to mother of 3.06/3.26/3.41 billion yuan, -4%/+6%/+5% year-on-year, corresponding to current PE 12.4/11.7/11.1X. The company remains one of the most anticipated mass sports brands in terms of brand volume, product reputation and performance growth in the medium to long term. It expects gradual restoration of brand growth momentum, refined channel operation to drive efficiency improvement+ development and innovation in categories such as outdoor and women's sports, and maintain a “buy” rating.

Risk warning: Unstable customer flow, special public opinion events affect brand promotion effectiveness