HAITONG INT'L: First gave TOPSPORTS (06110) a "Outperform" rating with a target price of HKD 3.79.

HAITONG INT'L released a research report covering TOPSPORTS (06110) for the first time, giving it an "outperform" rating, with an expected net profit attributable to the parent company of 13.25/18.00/21.52 billion yuan for FY2025-FY2027, with a target price of HK $3.79 per share. The company is solidifying the operation of its core brand and accelerating its layout in the niche market segments. It is pushing forward with omnichannel retail, optimizing operational efficiency, and continually rewarding shareholders with ample cash flow and a high and stable dividend payout ratio. Key points of HAITONG INT'L include: Improvement in sales compared to FY25Q3. In FY25Q3 (September-November 2024), the total sales amount of the company's retail and wholesale business showed a year-on-year decline in the mid single digits, compared to a low double-digit decrease in FY25Q2 and a low double-digit increase in the same period last year. Sales in FY25Q3 improved compared to Q2, mainly due to: 1) the impact of holidays and online promotions in advance, with a strong promotional atmosphere in the online channels, as the company seized the opportunity of online sales and increased investment in online channels, boosting overall performance; 2) discounts continue to deepen year-on-year to optimize inventory levels. Smooth inventory clearance, expected to return to a healthy level by the end of FY25. At the end of FY25H1, the company's inventory was 6.12 billion yuan, a year-on-year increase of 6.4%, with inventory turnover days of 148 days/4.9 months, an increase of 7 days year-on-year. Sales were weak in the first half of the year, leading to a slight increase in inventory levels year-on-year. The company anticipated this in advance and took measures to address it, including deepening discounts to optimize inventory. The gross profit margin in FY25H1 was 41.1%, a year-on-year decrease of 3.6%. Looking ahead to FY26, based on healthy inventory levels, the company is expected to be in a good position, with potential for improved profit margins. In addition to policy support for consumption and cost leverage, there is expected to be significant performance elasticity. Nike's FY25Q2 performance slightly exceeded expectations, CEO expressed support for core distribution partners. Nike's FY25Q2 (September-November 2024) revenue was $12.35 billion, a 9% year-on-year decline (currency-neutral), higher than the consensus expectation of $12.13 billion; gross margin decreased by 1.0 percentage point to 43.6%, higher than the consensus expectation of 43.1%; net profit was $1.16 billion, a 26% year-on-year decline, higher than the consensus expectation of $0.95 billion. Nike CEO Elliott Hill stated that they will "strengthen relationships with core distribution partners and regain their trust," and mentioned meetings with executives from TOPSPORTS and POU SHENG INT'L. Furthermore, Nike announced plans to adjust the positioning of NIKE DIGITAL, believing that its previous heavy discount promotions "captured the business of distribution partners rather than creating new demand," and in the future, NIKEDIGITAL will shift towards a full-price model, focusing on enhancing user experience and creating new organic demand. Nike expects to complete inventory clearance by the first half of next year, returning to a healthy level. In terms of operations, Nike's FY25Q2 inventory remained flat year-on-year, while inventory of distribution partners decreased slightly; the company plans to accelerate inventory clearance in the second half of the fiscal year (December 2024-May 2025) in order to return to a healthy level. The company plans to return to its professional sports roots, extending partnerships with sports leagues such as the NFL and NBA, as well as renowned teams like PSG, and optimizing its product portfolio with new running shoes like Vomero 18 and Pegasus Premium, as well as new ACG apparel to win back consumer mindshare. Risk factors: Changes in consumer preferences, deterioration of the retail environment, increased industry competition, and changes in brand partnerships.