一、Review of the Development stage: gains and losses in different Market environments

The company experienced an inventory crisis from 2011 to 2014, during which the reform and exploration of brands and channels were carried out, and the "brand reshaping" plan ended with the failure of price increase; after the return of Mr. Li Ning Co. Ltd. in 2015, through a series of inventory and channel rectification, starting from the third quarter of 2017, Li Ning Co. Ltd. 's same-store and pipeline growth began to return to steady and positive growth and continued to 2019.

二、Review recent performance: focus on operational efficiency

2019All-round and continuous improvement of annual performance and operating indicators

Li Ning Co. Ltd. 's overall performance in 2019 was eye-catching, with sales revenue up 32% year-on-year to 13.88 billion yuan, gross profit margin up one percentage point to 49.1%, operating profit margin further increased to 11.1%, after deducting 234 million one-time income, net profit margin increased by 2.3 percentage points to 9.1%. While the performance continues to grow, the company's operating indicators continue to improve. Open source securities believe thatThe main driving force of profit margin growth is from "fee control" to "improvement of operating leverage"。

Q1 2020Data verification for good logic

Although the first quarter was affected by the epidemic and the closure of offline stores led to the retrogression of retail sales, considering that the dealer inventory was relatively healthy by the end of 2019 and the operation continued the good performance of 2019Q4 in January 2020 (the overall growth is expected to be 30% +), it can be judged that the inventory pressure of Q1 in 2020 is relatively manageable.In the long run, the company's continuous efforts in the product side and the positive adjustment of channel management are gradually realized. Q2 is expected to continue and steadily enter the recovery range.

E-commerce channel may become a new territory for retail growth.

In 2020, the overall flow of Q1 dropped by double digits compared with the same period last year (expected to be about-20%). From a channel point of view, the wholesale channel dropped by 10%, while the retail channel dropped by 30%, while the retail channel dropped by 30%. Mainly because the retail channel stores are mostly located in first-and second-tier cities, the impact of epidemic control intensified. The overall flow of e-commerce channels has increased by 10% to 20% compared with the same period last year, and online marketing methods such as live streaming have achieved remarkable results. Institutional analysis saysConsideringQ1Due to the factor of net store closure, it is estimated that the situation of the same store is slightly better than expected, and it is estimated that while maintaining the growth rate, Li Ning Co. Ltd. 's operating profit remains at 20% and 30%.High level, belongs to the leading level of the industry。

三、Looking ahead: industry consolidation and profitability can be expected

Competition pattern: there is still room for integration in the industry

Industry integration continues, local brands are moving towards obvious differentiation. Compared with the international market, Q2 sales of brands such as Adidas and Puma in the Chinese market have recorded double-digit positive growth. Open source securities believe thatThe recovery of international brand sales will further accelerate, which may promote the tightening of discounts for international brands and provide more room for discount recovery for domestic brands.

CITIC predicts that with the gradual recovery of offline stores and the inflection point of sales, sports brands will enter the same dimension of competition.Li Ning Co. Ltd. and other leaders gradually widen the gap with the following brands, and continue to integrate for a period of time in the future to seize the market share of local sports brands.

Profit elasticity: from gross profit margin to net profit margin, there is sufficient motivation for optimization.

The gross profit margin of the company's main brand in 2019 is 49.1%, slightly higher than Anta's main brand, but much lower than FILA (70.4%), and also lower than Nike (60% +) and Adidas (55%).

Look at the room for further improvement in gross profit margin in three aspects:

There is still room for ① franchisee rebate and subsidy policy to continue to optimize.

② products continue to upgrade, high-end to promote the overall average ASP to continue to improve

③ operating efficiency continues to improve, driving terminal discounts to continue to be optimized.

In 2019, the discount rate of Li Ning Co. Ltd. brand is slightly more than 70%, which is still room for improvement compared with Anta goods (73% / 75%), FILA (around 80%) and Nike (around 80%). Taking it into consideration, CITIC believes thatThe gross margin of the main brand will continue to increase 0.5Pct~1Pct every year in the next few years.

四、The rationality of High valuation and Future Space calculation

CITIC offers three easy-to-understand ideas on the reasonableness of high valuations.

Industry attributes:From the perspective of sports industry and category attributes, sports products, as an important demand for a healthy lifestyle, have certain attributes of must-choose consumer goods, while the short-term epidemic and the sports year in the next 2-3 years are expected to further catalyze the sustained demand for healthy life.

The growth and high certainty of the companyFrom the point of view of company growth, investment in sports products should first consider space, and then consider valuation, which should not become the bottleneck of investment in consumer stocks. As long as it is a real quality consumer company with a moat, there is enough room for growth to support short-term valuations. Li Ning Co. Ltd. 's track is of high quality and obvious pattern dividend, with broad growth space and high certainty in the future.

Comparison of overseas experience:Compared with the valuation in the high growth period of Nike/Adidas history as a reference, excellent sports brand leaders can enjoy high valuation. From 2016 to 2017, when the Adidas performance increased rapidly, the PE exceeded 40 times, and from 2018 to 2019, the PE of Nike was stable at 35 + times.

Considering Li Ning Co. Ltd. 'sLong-term pricing and positioning strategyCITIC believes that as the company continues to open the price ceiling and broaden the price band for a long time, there will be a wider range of potential cities. Open source securities stressed that terminal sales will gradually improve after the epidemic.

In a comprehensive wayCITICThe following predictions are given:

Revenue in 2024 is expected to be close to 30 billion yuan (corresponding to CAGR > 15%). From a profit point of view, there is room for both gross profit margin and net profit margin to continue to improve. By 2024, the net profit rate is expected to rise from the current 9.1% to 15% + (an annual increase in 1.5~2Pcts), corresponding to a net profit of 45-5 billion times the target PE30, corresponding to a market capitalization space of 140 billion yuan (CAGR is about 20%).