Incidents:

The company announced the 2024Q3 operating situation. The number of units in the omni-channel retail sales of Li Ning's main brand declined year-on-year, and the number of sales points by the end of the quarter increased by 41 compared to the beginning of the year.

Comment:

The Q3 turnover performance was in line with expectations. The number of units in the 2024Q3 Li Ning main brand (excluding Li Ning YOUNG) declined year-on-year. The terminal performance was weaker month-on-month compared to the first half of the year, in line with the overall market trend.

The number of units of offline channels decreased higher year over year. Among them, the number of units of direct sales channels decreased higher year over year, and the number of units of the wholesale channel decreased higher year over year. The difference in the growth rate of direct sales and wholesale sales is mainly due to the relatively good performance of Ole stores; the number of units in the year-on-year increase in e-commerce channel traffic. Company discounts are expected to deepen year-over-year in Q3 to maintain healthy inventory levels. Since October, with the support of the National Day holiday, the company's online and offline turnover growth rates have improved markedly.

The channel is expanding steadily. As of 2024Q3, the number of Li Ning's main brand sales points was 6,281, a net increase of 42 compared with the end of the previous quarter, and a net increase of 41 compared to the beginning of the year. Among them, there was a net decrease of 14 direct-run stores and a net increase of 55; Li Ning YOUNG had 1,459 sales points, a net increase of 21 over the end of the previous quarter and a net increase of 31 compared to the beginning of the year. Against the backdrop of pressure on terminal performance, the company achieved a steady store expansion policy.

Establish joint ventures to expand overseas business. The company announced that it cooperated with Sequoia to establish a joint venture to strengthen international market expansion. Joint ventures are 29%/26%/45% of the shares held by the company/ Mr. Li Ning/ Sequoia respectively. If the joint venture's operating income in the 4th year is less than 1 billion US dollars, the company and Mr. Li Ning have the right to acquire part of the shares, and the shares can be fully purchased in the 8th year. Establishing a joint venture helps the listed company system focus on the domestic market while developing overseas markets with lower risk.

Investment advice: In the context of the consumer environment being pressured in 2024, the company's flow is under pressure. In the context of the Q4 low base, promotions such as the National Day holiday and Double 11 are expected to boost terminal sales. The company is expected to achieve a 1.8%/5.3%/5.1% year-on-year increase in revenue to 28.09/29.58/31.08 billion yuan from 2024 to 2026; net profit to mother -2.8%/10.5%/10% YoY to 3.1/3.42/3.77 billion yuan, corresponding to a valuation of 12/11/10 times, maintaining its “buy” rating.

Risk warning: New product development falls short of expectations, store expansion falls short of expectations, market competition intensifies, profit forecasts and valuations fall short of expectations, etc.