GuoZheng International: Maintains a "buy" rating on TOPSPORTS (06110) with a target price of 3.7 Hong Kong dollars.

Guoze International released a research report, maintaining a "buy" rating for TOPSPORTS (06110), predicting an EPS of 0.22/0.29/0.33 yuan for FY25/26/27, giving a 15x PE for the 2025/02 fiscal year, with a target price of 3.7 Hong Kong dollars. TOPSPORTS has had deep cooperation with Nike and Adidas for many years, and in addition to its main brands, it continues to expand its cooperation with domestic and international sports brands. It is believed that with the improvement of the retail consumption environment, the enthusiasm for sports consumption will gradually rise, driving the company's performance. In recent years, the company has also adhered to a high dividend distribution policy, bringing higher returns to shareholders. Guoze International's main points are as follows: - Sales declined but improved month-on-month, with online performance better than offline. - In FY25Q3 (September-November), the total sales amount of the group's retail and wholesale business declined year-on-year by a single digit, but improved from the 10-20% decline in FY25Q2. Looking at different channels, online performance was better than offline, as the company actively seized sales opportunities during online promotions in September-November, leading to double-digit growth in online sales. The proportion of online direct sales to total direct sales increased to 40%. Offline customer flow improved month-on-month, but there is still some pressure. - Store structure continues to be optimized, with continued emphasis on inventory improvement. - In terms of stores, the gross sales area of direct stores decreased year-on-year by 4.4% and month-on-month by 2.1%; the number of stores decreased by a high single-digit year-on-year. The decrease in the number of stores was greater than the decrease in area, indicating that the company's store structure is continuing to be optimized. In the future, the company is expected to continue to strengthen the operational capabilities of individual stores, matching store types based on brand attributes. In terms of inventory, the current inventory turnover is about 4-5 months, and despite the pressure of peak season inventory replenishment, the inventory remains healthy and controllable, with new products accounting for about 70-80%. The goal is to improve inventory by the end of FY25. Due to better online performance than offline and the impact of reducing inventory, overall discount levels have deepened, and it is expected that discount levels will improve after the pace of inventory clearance accelerates. - Adidas performing well, Nike in an adjustment period. - The main brand Adidas is performing well, with revenue growth in the Greater China region achieving high single digits in the first three quarters, and management continues to raise fiscal year guidance, expecting full-year revenue growth of 10%. In comparison to Adidas's strong recovery, the other main brand Nike is in an adjustment period, but it is expected to improve with the appointment of a new CEO. On October 14 this year, Nike's new CEO Elliot Hill took office (previously serving as Regional and Sales President in 2013, responsible for global sales strategy, and leading Nike's global sales from $25.3 billion to $39.1 billion). It is believed that Hill's return will lead Nike back to its path of product innovation and drive a recovery in Nike's business. The new CEO also values the Chinese market and is expected to have closer cooperation with retail partners. As Nike's largest retail partner in China, it is believed that TOPSPORTS will continue to benefit from the recovery of Nike's business. - Risk warning: Macroeconomic downturn, weak consumption; store optimization falling short of expectations; inventory risks.