BOCOM INTL maintains a "neutral" rating on TOPSPORTS (06110) with a target price of 3.06 Hong Kong dollars.

BOCOM INTL released a research report maintaining a "neutral" rating on TOPSPORTS (06110), citing continued pressure on customer traffic and expecting the company to face operational pressure in the short term. However, considering the large growth potential in the sports sector, despite expectations of adjustments and changes in the offline channel (such as precise matching of brand attributes), it remains an important channel. At the same time, Nike's new CEO emphasizes comprehensive and efficient retail cooperation and layout of professional sports categories such as outdoor and running (with a focus on cushioning materials). As a key retailer for Nike in the Chinese market, the future cooperation between the two is promising. The target price remains at 3.06 Hong Kong dollars. BOCOM INTL's main points are as follows: - The third-quarter operations are in line with company expectations, with continuous improvement in store operation efficiency. - In the third quarter of fiscal year 2024, the total sales amount of retail and wholesale business decreased by a single digit percentage year-on-year, with retail performing slightly better than wholesale. The company continues to eliminate inefficient and unprofitable stores. As of the end of November 2024, the gross sales area of directly operated stores decreased by 2.1% compared to the end of the previous quarter and by 4.4% year-on-year, with a high single-digit decrease in total store numbers year-on-year. The reduction in store numbers is greater than the reduction in area, thus maintaining a trend of year-on-year growth in average store area, in line with the company's goal of improving store image and efficiency. The company targets a decrease in net store numbers in the second half of the year not lower than the first half, and expects store numbers to remain stable next year. - Retail performance continues the trend of the first half of the year; destocking pace is in line with company goals. - The performance of the company's retail business in the third quarter is consistent with the first half of the year, with professional sports brands showing rapid growth, while mass casual brands are weaker. By channel, offline channels continue to be under pressure from customer traffic. In terms of online channels, influenced by various promotional festivals, the double-digit growth of online channels has become the main revenue contributor for the company's retail business in the third quarter. Destocking has been one of the main focuses of TOPSPORTS since the beginning of this year, and the progress is in line with company expectations. As of the end of November, 70-80% of the overall inventory is new products. - The discount rate continues to deepen. - The increase in the sales proportion of online channels offsets the improvement in online discount rates, coupled with the deepening of offline discount rates, and the impact of destocking, leading to an increase in the group's discount rate in the third quarter year-on-year. Despite the improvement in sales performance in December, the discount rate continues to deepen year-on-year due to the continued destocking impact.