CMB International: Lower Li Ning's target price to HK$20, with gross profit margin in the first half of the year exceeding expectations

Golden Ten Data reported on August 19 that China Merchants Securities issued a report pointing out that Li Ning (02331. HK) drove gross profit margin higher than expected through strict control of retail discounts, so net profit fell by only 8% year-on-year in the first half of the year, better than the market expectation of an 18% decline. During the analyst call, management lowered its full-year revenue guidance to a low-single-digit rise based on the high-single-digit decline in offline traffic observed so far in the third quarter. According to the report, Li Ning’s relatively stable outlook for the second half of the year is in line with the expectations of the bank and the market, which is believed to be mainly due to the management’s cautious and active risk control, including the inventory level below 4 months and at a healthy level; Channel optimization has led to an increase in online contribution and an improvement in profit margins. and the rise in the proportion of running shoes, which drove a significant increase in overall retail sales. The bank pointed out that considering that the stock price is currently at a nearly 10-year low, it believes that the risk-reward has become better and maintains an “overweight” rating. In line with the latest guidance, revenue forecasts for 2024 to 2026 have been lowered by 2% to 8%, and net profit forecasts have been lowered by 3% to 6% accordingly. The target price was lowered to HK$20 from HK$25.6.