Li Ning (2331 HK) Guidance maintained with healthy inventory

招银国际 CMBINTERNATIONAL 1155AugA20u22g2022 股服票果报礼告告网网 CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdate CMBInternationalGlobalMarkets|EquityResearchICompanyUpdate LLiNiinNg(2i3n31gHK)(2331HK) GGuuidaindceamanintcaineedwmithhaeailnthytinaveinntoreydwithhealthyinventory BBUUY(MYaint(aMin)aintain) HK$80.64 TargetPriceHK$80.64 TargetPrice (PreviousTPHK$75.43) (PreviousTPHK$75.43) 1H22resultwasamixtureofweakerGPmarginbutbettersales,otherincome 1H22resultwasamixtureofweakerGPmarginbutbettersales,otherincome UUpp/Do/wDnsoidwenside ++151.05%.0% andcostscontrol,butwearequitedelightedbythehealthyinventoryandsolid FY22guidance.Hence,wereiterateBUYandraisedTPtoHK$80.64,basedon andcostscontrol,butwearequitedelightedbythehealthyinventoryandsolid a32xFY23EP/E(rolledoverfrom35xFY22EP/E).Itscurrentvaluationof28x FY22guidance.Hence,wereiterateBUYandraisedTPtoHKS80.64,basedon a32xFY23EP/E(rolledoverfrom35xFY22EP/E).Itscurrentvaluationof28x FY23EP/Eisnottoodemanding,especiallywhenthesectoristurningaround. %% 1H22resultinline,softenGPmarginoffsetbystrongsales,other incomeandcostscontrol.Salesincreasedby22%YoYtoRMB12.4bn, 1H22resultinline,softenGPmarginoffsetbystrongsales,other beatingBBG/CMBIest.by7%/13%,thankstobloomingwholesaleand incomeandcostscontrol.Salesincreasedby22%YoYtoRMB12.4bn,beatingBBG/CMBIest.by7%/13%,thankstobloomingwholesaleand footwearsales.Netprofitroseby12%YoYtoRMB2.2bn,4%/7%above footwearsales.Netprofitroseby12%YoYtoRMB2.2bn,4%/7%above BBG/CMBIest.,whichconsistsofasizablemissinGPmargin(at50.0%vs CMBIest,of54,1%)butmuchstrongerthanexpectedotherincome,interest BBG/CMBIest.,whichconsistsofasizablemissinGPmargin(at50.0%vsCMBIest.of54.1%)butmuchstrongerthanexpectedotherincome,interestiinncomceoanmdopeexcoantrnol.Bduteoquapllyeimxportacntoistnhatttrheochla.nnBelinuventtoreyquallyimportantisthatthechannelinventorywasstilllowandhealthyat3.6months(vs3.1/3.9monthsin1H21/2H21). wasstilllowandhealthyat3.6months(vs3.1/3.9monthsin1H21/2H21). est.of-5%,whichisjustatparwithFILA,worsethanAnta’sMSDdecline 2Q22retailsalesmissedslightlybuttrendinJul-Aug2022is 2Q22retailsalesmissedslightlybuttrendinJul-Aug2022isencouraging.RetailsalesdroppedbyHSDin2Q22,slightlybelowCMBI encouraging.RetailsalesdroppedbyHSDin2Q22,slightlybelowCMBI est.of-5%,whichisjustatparwithFILA,worsethanAnta'sMSDdecline aandnfadrbehfinad'srXtebp'semihd-teiennsdgro’wsth,Xbuttiteisupnd’esrstanmdabiledgiv-etnetheensgrowth,butitisunderstandablegiventhehighbaseandtheshanghailockdown.Consideringthehighbase(70%+/ 30%+growthinJul/Aug2021),retailsalesgrowthof10%+duringJul-10 highbaseandtheshanghailockdown.Consideringthehighbase(70%+/ 30%+growthinJul/Aug2021),retailsalesgrowthof10%+duringJul-10 AAugu20g22(p2osi0tive2/m2uch(fapsteorinsJuil/tAiuvg)eisd/ecemntenuoucghh,inofuarvieswterinJul/Aug)isdecentenough,inourview.Wearenowforecasting20%/25%retailsalesgrowthin3Q22E/4Q22E. NochangeontheFY22Eguidanceandwearenowmoreconfident. NochangeontheFY22Eguidanceandwearenowmoreconfident. ManagementreiteratedtheirFY22Eguidance(high-teenstolow20ssales growthandhigh-teensNPmargin)andweareconfidenttoo,becauseof:1) ManagementreiteratedtheirFY22Eguidance(high-teenstolow20ssales growthandhigh-teensNPmargin)andweareconfidenttoo,becauseof:1) massivesuccessintheprofessionalrunningshoes(thesuperlightseries recordedasalesvolumeof3mnpairs),2)lowbase,3)decentsalesarea massivesuccessintheprofessionalrunningshoes(thesuperlightseries recordedasalesvolumeof3mnpairs),2)lowbase,3)decentsalesarea growth(20%+YoY),4)stellarsalesperstorebyitsnewstoresin1H22((at RMB450Kvsgroupaverageof~RMB350KinFY21),5)successfulreforms growth(20%+YoY),4)stellarsalesperstorebyitsnewstoresin1H22(at ontheretailoperation,whichconsistofweeklyreviewsonitemspertickets RMB450Kvsgroupaverageof~RMB350KinFY21),5)successfulreformsontheretailoperation,whichconsistofweeklyreviewsonitemspertickets andconversionrate,etc.Wearealsocomfortableaboutitsmargins,dueto: andconversionrate,etc.Wearealsocomfortableaboutitsmargins,dueto: 1)healthyinventorylevelaswellasthenew/oldproductmix(lesspressure toofferlargerretaildiscountsin2H22Edespitetherelativelyexcessive 1)healthyinventorylevelaswellasthenew/oldproductmix(lesspressuretoofferlargerretaildiscountsin2H22Edespitetherelativelyexcessiveindustryinventory)and2)itsexceptionalopexcontrol(esp.onstaffcosts). industryinventory)and2)itsexceptionalopexcontrol(esp.onstaffcosts). CurrentPriceHK$70.10 CurrentPriceHK$70.10 ChinaSportswearSector ChinaSportswearSector WWalaterlWteoorWoo (852)37618776 walterwoo@cmbi.com.hk walterwoo@crnbi.com.hk (852)37618776 RRapahpaehlTaseelTse (852)39000856 (852)39000856 raphaeltse@cmbi.com.hk raphaeltse@cmbi.com.hk StockData M1Cap(HKSmn) StockData MktCap(HK$mn) Avg3mthst/o(HK$mn) Avg3mthst/o(HKSmn) 183,513 183,513 1,048.91 1,048.91 52wHigh/Low(HK$) 52wHigh/Low(HK$) 108.2/48.6 108.2/48.6 TotalIssuedShares(mn) 2,617.9 TotalIssuodShares(mn) Source:Bloomberg Source:Bloomberg 2.617.9 ShareholdingStructure ShareholdingStructure MrLiNing&Family 12.79% 12.79% MB