Guosheng Securities: Maintains a "buy" rating on TOPSPORTS (06110) with excellent retail capabilities and high dividend returns.

Guosheng Securities released a research report stating that they maintain a "buy" rating on TOPSPORTS (06110). As a leading sports goods retail platform in China, despite a slight decline due to short-term fluctuations in the major brand Nike, adidas is maintaining a good growth momentum. The company expects to expand its cooperation matrix with new brands such as LI NING and Kailish, deepen digital operations, private traffic diversion, and membership management to continuously strengthen retail efficiency. Guosheng Securities' main points are as follows: Business Introduction TOPSPORTS is the largest sports goods retail and service platform in China. TOPSPORTS began its sports goods operations in the 1990s, and its main partners currently include major brands Nike, adidas, as well as other brands like Puma, Converse, and Vans. Faced with changes in consumer environment and adjustments to the main brand business, the company's revenue for FY2025/FY2026H1 is expected to decrease by -7%/-6% to 27/12.3 billion RMB. The company's net profit attributable to the parent company for FY2025/FY2026H1 is expected to decrease by -42%/-10% to 1.29/0.79 billion RMB. Differences in short-term performance of main brands, rich matrix of other brands In FY2026H1, the company's revenue from main brands decreased by 4.8% year-on-year to 10.8 billion RMB, accounting for 88% of the company's revenue. Since 2024, adidas' operating performance has continued to exceed expectations, with currency-neutral revenue growth of 8% in 2025Q3. Nike's short-term performance has fluctuated. In terms of new brand cooperation, the company established a partnership with LI NING in 2022, integrating a domestic brand into its cooperation matrix for the first time. Since 2023, in response to the outdoor and running sports boom, the company has gradually established partnerships with brands such as Kailish, Norda, Norrona, Soar, and Ciela. In terms of cooperation models, TOPSPORTS also plays the role of exclusive partner/operator, responsible for brand strategy, content dissemination, omnichannel operations, and community cultivation for related brands in China. Leading retail operation capabilities lay the foundation for the company's long-term growth 1) Continuously optimize offline store operations based on brand characteristics. By FY2023, the company promoted the large store project, with the number of self-operated stores larger than 300 square meters reaching 1,056, accounting for 16.1%. In FY2024, the company shifted its strategy to a "one strategy per brand" approach to optimize store image and improve store efficiency. 2) Focus on private domain and live e-commerce, with significant effects. By the end of FY2026H1, TOPSPORTS' mini-program stores exceeded 3,600, and in addition to WeChat mini-programs, the company expanded to new platforms such as Dianping and Douyin to drive traffic to offline stores, broaden the coverage of existing stores, with e-commerce sales expected to account for around 40% in FY2026H1. 3) Excellent membership operation capabilities. By the end of FY2025H1, the company's total registered members across all channels reached 89.1 million, with continued year-on-year growth, and the company has taken various measures to strengthen user stickiness and enhance membership conversion rates. 4) Digital capabilities run through all channels, comprehensively improving sales efficiency. In 2019, the company clearly outlined its digital transformation strategy at the time of its listing, mainly including empowering frontline employees, digitizing store operations, and optimizing product management. Since 2020, facing fluctuations in offline foot traffic and changes in consumer preferences, the company has focused on mini-program sales off-site, private domain ecosystem construction, and store live broadcasts to break through traffic bottlenecks, helping the company make steady progress in the fluctuating consumer environment and intense market competition. Medium-term trend In FY2027, Nike's new product launch rhythm is expected to improve, benefiting TOPSPORTS' revenue and profit margin. Currently, one of the company's main brands, adidas, maintains a good sales momentum, while Nike's performance in the Greater China region is in the process of recovery, with a cautious pace in short-term product launches. Taking a comprehensive view, the bank estimates that the company's profit in FY2026 will remain stable. Looking to FY2027, with the gradual release of new Nike products, the bank expects the sales trend of the brand to improve, potentially driving terminal flow and company revenue growth, as well as enhancing the company's overall profitability with significant profit elasticity. Profit forecast and investment recommendation Since its listing in 2019, the company has cumulatively paid a dividend ratio of 107.3%. As of the end of FY2026H1, the company's cash and cash equivalents on hand amounted to 2.54 billion RMB, continuously providing high dividends to investors. In the long term, as a leading downstream channel company for sports shoes and apparel, with an expanding cooperation brand matrix, excellent retail efficiency, and a solid competitive moat, the bank estimates the company's net profit attributable to the parent company for FY2026~FY2028 to be 12.97/14.81/16.66 billion RMB respectively. The current price corresponds to a FY2026 PE ratio of 14.6 times, with a dividend yield of 7%, maintaining a "buy" rating. Risk warning Risk of weak consumer purchasing power and fluctuations in consumer environment, store expansion falling short of expectations, and slower-than-expected development of e-commerce business.