20240321-招银国际-李宁-02331.HK-Expectations_reset_with_positive_initiatives_9页_1mb

Li Ning (2331 HK) - Equity Research Summary

Recommendation

• Maintain BUY rating with a target price of HK$24.86 (down 15.9% YoY), based on 15x FY24E P/E.
• Despite reduced price target, the potential for turnaround supports the buy recommendation.

Key Points

• FY23 Results: Sales growth of 7% YOY in-line with market expectations, net profit declined 22% due to impairment losses and lower margins. Results missed BBG estimates but were better than bearish views.
• Management Actions: Appreciated efforts to address bugsell, branding, and channel issues. Reset investor expectations with prudent guidance.
• Positive Initiatives:
  • Stabilization of e-commerce business expected to drive sales acceleration and narrower retail discounts by FY24E.
  • Basketball sales rebound due to supply rationalization and popularity of star products.
  • Centralized management of star SKUs with target of 100% by FY24E, improving product efficiency.
  • Consolidation of marketing functions for more focused events.
  • Expected decline in impairment losses.
  • Expansion to lower-tier cities and value-for-money products.
• Financial Revisions: Revised FY24E/25E net profit down by 8% and 13% respectively, due to slower sales growth, lower operating leverage, and guidance impact. Revised revenue growth from 7% to reflect slowdown.

Financial Summary (Selected Data)

• Revenue: FY23 at RMB 27.6bn, FY24E at RMB 29.5bn (7.0% CAGR).
• Profit: FY23 net profit RMB 3.2bn, FY24E net profit RMB 3.8bn.
• Margins: Gross margin improved to 49.1% in 2023 from 48.4%, expected to reach 50.0% by FY26E.
• Valuation:
  • Current P/E: 13.4x (FY24E).
  • Target price: HK$24.86 (from HK$32.93).
  • Yield: 3.3% (increased from historical levels).
  • EV/Sales ratio: 1.5x (FY24E).

Outlook and Risks

• Potential for Turnaround: Likelihood of moderate sales growth and margin expansion through initiatives.
• Downside Risk: Expected 8% 3-year sales CAGR may limit upside; current valuation at 13x P/E considered less attractive for higher growth expectations.
• Comparison: Li Ning outperformed bearish views in FY23, but peer metrics show varied P/E, P/B, and yield comparisons.

Analyst Certification

• Analyst certifies views accurately reflect personal opinions and no compensation tied to report content.
• Disclosures include risks, performance uncertainty, and independence of analysis.