EB Securities: Maintains "Buy" Rating on TOPSPORTS (06110) Weak Demand Leads to Pressure on First-half Financial Performance.

EB SECURITIES has released a research report stating that it maintains a "buy" rating for TOPSPORTS (06110), considering the uncertainty in consumer demand trends. The company's profit forecast for the fiscal years 2025-2027 has been lowered (with a 38%/35%/31% decrease compared to previous forecasts), corresponding to an EPS of 0.24/0.28/0.32 yuan for the years 2025-2027. The company has consistently paid dividends exceeding 100% for the fiscal years 2022-2024, demonstrating a high dividend attribute. The report indicates that TOPSPORTS is expected to experience a year-on-year decline of approximately 35% in net profit for the first half of the fiscal year 2025. The main reasons for the decline in profit include: 1) the impact of weak consumption, leading to a decrease in revenue in the first half of the fiscal year, particularly with a significant impact on offline customer traffic, resulting in increased operating leverage and a year-on-year increase in sales and management expense ratio; 2) the company increased promotional efforts in the first half of the fiscal year, with deeper online discounts compared to offline discounts, and an increase in the proportion of online revenue, leading to a year-on-year decline in gross profit margin. For the full fiscal years 2023/24, the revenue breakdown for the company's main brands (Nike + Adidas), other brand revenues (PUMA, Converse, VF Group brands, ASICS, Onitsuka Tiger, Skechers, NBA, LI NING, HOKA and K-LE) joint venture fee income, and e-sports income accounted for 85.8%, 13.5%, 0.6%, and 0.1% of total revenue, respectively. Among them, Nike's main brand in the Greater China region is expected to experience a cumulative year-on-year growth of 3.8% for the second half of fiscal year 2023/24 (corresponding to the period from December 23 to May 24); Adidas's revenue in the first half of the fiscal year 2024 in the Greater China region is expected to grow by 8.5% according to fixed exchange rates. Looking ahead, the company forecasts that the demand in the second half of the fiscal year will continue to be relatively volatile, with the revenue decline potentially greater than in the first half of the fiscal year, while retail discounts may be deeper than in the first half of the fiscal year. The company will take multidimensional measures to ensure healthy inventory in the second half of the fiscal year, including expanding new channels, improving overall product conversion efficiency, and flexibly using inventory recall and rebates to manage products for different seasons. The company will also introduce new niche brands to enrich its brand matrix, and on the channel side, it will actively shrink offline store sizes based on market changes, being more cautious in opening and renovating stores, and increasing efforts to close underperforming stores compared to last year.