Orders fell in 24Q3, and orders falling higher on the line were basically the same as in Q2. With the exception of distribution, the 24Q3 Li Ning brand's omni-channel traffic growth rate all slowed down compared to Q2. Total flow/offline traffic declined between incoming orders/high orders (Q2 was lower orders/lower incoming orders, respectively). Direct marketing/distribution/e-commerce turnover declined between incoming orders/dropped high orders/increased orders (Q2 was flat/falling high orders/high growth orders, respectively). We determined that the difference in sales between direct sales and distribution was mainly caused by outlet stores in the direct management category. After exclusion, the overall turnover of Q3 offline stores fell high, which is basically consistent with Q2. Comparing the performance of Q2 and Q3 direct management channels, we speculate that the performance of Q3 outlet stores weakened sequentially. E-commerce traffic continued to grow positively in the first three quarters of this year. We determined that on the one hand, the customer flow was shifting from offline to online, and on the other hand, e-commerce channel packaging was cost-effective and more popular.

The number of channels is expanding steadily. At the end of 24Q3, there were a total of 6,281 Li Ning brand stores, a net increase of 41 from the year to date, including -14/+55 retail/distribution stores respectively. Li Ning YOUNG has a total of 1,459 stores, a net increase of 31 throughout the year. We judge that at present, the company's high-level market stores will be mainly adjusted and closed in small quantities. There is still an empty market to explore at the lower levels, and it is expected that distribution will continue to open steadily.

Establishing joint ventures overseas. The company announced the establishment of a joint venture with Red Shirt Capital to be responsible for overseas operation and promotion of the Li Ning brand. We expect that at this stage, it will mainly focus on the Southeast Asian and Belt and Road markets. The total share capital of the joint venture was HK$0.2 billion, and LN Co (a wholly-owned subsidiary of the listed company) /Founder Co (wholly owned by Li Ning) /HongShan Motivation invested 58 million/52 million/62.728 million/HK$27.272 million respectively, holding 29%/26%/31.36%/13.64% of the shares, respectively.

Li Ning's outdoor combines cutting-edge technology with Oriental aesthetics. Li Ning's new outdoor products in the fall and winter of 2024 advocate two major scenarios: light-trend outdoor and hardcore outdoor. On September 21, the company held an outdoor product show with the theme “Back to the East” in Jingdezhen, Jiangxi. The trendy lightweight outdoor uses the warm colors and classic models of the Five Daguan Kilns of the Song Dynasty, and the hard-core outdoor is equipped with rainstorm prevention and double permeability nanotechnology developed in cooperation with national scientific research institutions. Currently, the company's outdoor products have launched clothing, shoes, accessories, etc. Among them, the price of shoes ranges between 200-400 yuan, and also includes equipment? High-end technical models and casual models that cost around 200 yuan. In terms of clothing, the price of Malone's same Wanlongjia jacket is currently 554 yuan after the voucher, while the price of other jackets is around 300-400 yuan.

Profit forecasting and valuation. The company adheres to steady operation and healthy development, further expands its influence in the professional sports market, continuously optimizes the channel structure, and improves operational efficiency. We expect the company's net profit to be 3.17/3.37 billion yuan in 2024/2025, respectively. The 2024 PE valuation range is 13-15X, converted according to the corresponding reasonable value range of 17.33-19.99 yuan/share according to the corresponding reasonable value range of 17.33-19.99 yuan/share, maintaining the “superior to the market” rating.

Risk warning. The same store and online growth rate fell short of expectations, China's Li Ning's potential weakened, possible future changes in management brought about strategic uncertainty, and sales of fist products fell short of expectations.