Benchmark (06110.HK) issued a profit warning as its interim net profit fell 35% year-on-year to the end of August, and the morning market sold off, falling as low as $2.11, down 20.6% to a new low of $2.23 in the half day. UBS said the company's earnings warning guidance was worse than expected. Macroconsumer sentiment hindered the retail environment in the sector, led to a decline in revenues and a negative impact on operating leverage. Retail discounts widened compared to the same period last year, leading to a drop in gross profit margins. Duma said that the decline in net profit in the first half of fiscal 2025 was not surprising, while the company's management indicated that discounts could be further widened and deepened in the second half of fiscal 2025.

The company issued a profit warning after going on the market yesterday (10th) and forecast a year-on-year decline in net profit for the six months ended August. The Group's revenue declined year-on-year during the reporting period, mainly due to weak macro consumption dragging down the retail environment in the industry. Demand to slow downline customer flow impacts was more pronounced, resulting in negative operating leverage, resulting in year-over-year increases in sales and distribution and general and administrative expense rates; and retail discounts deepened year-on-year, resulting in a year-on-year decline in gross margins.

[Interim net profit guidance is less than expected 4%]

Based on net profit of RMB 1.337 billion in the first half of last year, Bank of China International estimates that the net profit for the first half of the current financial year is only RMB 0.869 billion, below the bank and market expectations of RMB 2.634 billion and RMB 2.3 billion, respectively, compared to 33% and 38% of the bank and market expectations. Disappointment. The bank also believes that earnings alert hints at lower expectations for sporting goods retail sales in July-August, despite Nike (NKE.US) having problems of its own. The bank believes that Dandao is more affected by the consumer downturn than its peers due to the higher retail prices of Nike and Adidas brands. Based on the higher uncertainty over this year's Double Eleven, the bank expects further downgrades to industry profit forecasts.

Citi has added Dandao to its share price downward watch list within 30 days, and expects Nike to increase inventory work in its China channel when Nike releases its quarterly results next month, as a negative catalyst for China's sporting goods industry. The bank also quoted management as saying that the company decided to reset Nike's channel inventory in the next six months and plans to cut bookings from Nike in the second half of the year. Based on Nike accounting for 23% of company sales, 25% to 30% of Nike's retail sales market in China, and Nike's high-end positioning, Nike inventory is expected to have a significant negative impact on Chinese brands such as Li Ning (02331.HK) and Anpa (02020.HK) and Nike's ecosystem in China.

US Securities downgrades its investment rating to “Neutral” from “Buy” to “Neutral” on the back of continued weakness in demand and increased risk of discounting. It lowered its earnings per share forecast for the company's current fiscal year to FY 2027 by 25% to 28% to reflect weaker sales and earnings expectations, with the target price revised from $4.3 to $3 to reflect Prediction of positive results and growth prospects reduce the impact on valuation. The line indicates that Tupac maintains a 100% dividend ratio, meaning a dividend yield of 9 percent, which provides some support for the share price. Dividends are also supported by healthy free cash flow and a strong balance sheet.

COXIE LOWERED ITS REVENUE FORECAST FOR THE CURRENT FISCAL YEAR TO 2027 BY 11% TO 15%, IMPLYING REVENUE GROWTH FOR NEXT FISCAL YEAR TO FALL BY 11 AND 2 PERCENTAGE POINTS, TO A RETREAT OF 6% AND 5%, RESPECTIVELY. The bank also lowered its forecast for full-year net profit for the stock by 30% to 33%, based on the impact of unbalanced inventories on gross margins, an unfavorable channel mix and significant negative operating leverage from off-line store operations. The bank said the drop in net profit was unexpected because it was worse than its peers, and it cut its target price from $6 to $2.7, and its target forecast market earnings to be cut from 15x to 10x, maintaining a “neutral” rating.

------------------------------------------------

The latest target price and investment ratings from 6 brokers on the web include:

Broker │ Investment Rating │ Target Price

UBS │ Buy │ $6.6

Citi│ Buy│ $4.88

Morgan Stanley │ Increased│ $4.2->$3.7

US Securities │ Buy->Neutral │ $4.3 ->$3

Volkswagen │ Neutral │ 6 yuan ->2.7 $

Bank of China International │ Buy**│ 7.5yuan**

** Review investment rating and target price in the short term

Broker│ Views

UBS │ Earnings Warning Expectations for the First Half of the Fiscal Year

Citi│ Negative impact on the industry

Morgan Stanley │ Net Profit Forecast Declines 10 to 13% for FY 2025 to FY2027

Citi│ Ying Sisi has negative insights on Anping (02020.HK) and Li Ning (02331.HK)

US Securities│ Further Weakening of Retail Sales in July-August

Volkswagen │ Profit Declines Beyond Market Expectations

China International │ expects industry to see more profit downgrades