The Zhitong Finance App learned that China Securities International released a research report stating that it maintains the Taobo (06110) “buy” rating and predicts that the EPS for FY25/26/27 will be 0.22/0.29/0.33 yuan, giving 15 times PE for the 2025/02 fiscal year, with a target price of HK$3.7. Taobo has had in-depth cooperation with Nike and Adidas for many years. In addition to the main brands, they are also continuing to expand cooperation with domestic sports brands and other international brands. I believe that with the improvement of the retail consumption environment, enthusiasm for sports consumption will gradually pick up, driving the company's performance back up. In recent years, the company has also insisted on a high dividend policy, bringing higher returns to shareholders.

The main views of China Securities International are as follows:

Turnover declined but improved month-on-month, and online performance was better than offline.

FY25Q3 (September-November) The total sales amount of the Group's retail and wholesale business in the year-on-year decline improved compared to the 10-20% decline in FY25Q2. Looking at different channels, online performance is better than offline. Since September-November is a period of intense online promotions, the company actively grasped sales opportunities, and online sales recorded double-digit growth. Online direct sales accounted for 40% of total direct sales; offline customer flow improved month-on-month, but there is still some pressure.

The store structure continues to be optimized, and inventory improvements continue to be strengthened.

In terms of stores, the gross sales area of direct-run stores decreased by 4.4% year on year and 2.1% month on month; the number of stores decreased by about a high number of units year over year. The decline in the number of stores was greater than the decrease in area, indicating that the company's store structure continues to be optimized. In the future, it is expected that the company will continue to strengthen its ability to operate single stores and differentiate and match store types according to brand attributes. In terms of inventory, the current inventory sales ratio is about 4-5 months, and inventory remains healthy and controllable under peak season preparation pressure. New products account for about 7-80%. The goal is to improve inventory by the end of FY25. In terms of discounts, due to better online performance than offline, combined with the influence of inventory removal, the overall discount level has deepened. It is expected that the discount level will improve as the pace of inventory removal accelerates.

Adidas performed excellently, and Nike is in a period of adjustment.

The main brand, Adidas, performed well. Revenue growth in Greater China was high in the first three quarters. Management continued to raise fiscal year guidelines, and revenue growth is expected to reach 10% for the whole year. Compared to Adidas's strong recovery, Nike, the other main brand, is in an adjustment period, but it is expected that it will improve as the new CEO takes office. On October 14 this year, Nike's new CEO Elliot Hill took office (he served as regional and sales president in 2013, responsible for global sales strategy, and led Nike's global sales to rise from 25.3 billion US dollars to 39.1 billion US dollars). I believe Hill's return will lead Nike back to the track of product innovation and drive the recovery of Nike's business. At the same time, the new CEO also attaches great importance to the Chinese market and is expected to have closer partnerships with retail partners. As Nike's largest retail partner in China, I believe Taobo will continue to benefit from Nike's business recovery.

Risk warning: macroeconomic downturn, weak consumption; store optimization falls short of expectations; inventory risk.