Guosen: Maintaining an "outperform" investment rating on LI NING (02331) with a reasonable valuation range of HKD 21.20-22.30.

Guosen released a research report stating that they are optimistic about LI NING's brand momentum rebound driving new growth opportunities. It is expected that the company's net profit attributable to shareholders will be 24.0 billion yuan, 26.8 billion yuan, and 30.6 billion yuan respectively for the years 2025-2027. They are optimistic about the impact of new products and marketing strategies on performance. Taking into account the expected upward reversal of the company as a leading domestic sports brand, long-term profit growth potential, and abundant cash reserves, they maintain a reasonable valuation range of 21.20-22.30 Hong Kong dollars for the company, corresponding to a P/E ratio of approximately 19-20 times for 2026, and maintain an "outperform the market" investment rating. Key points from Guosen are as follows: Sports industry: Continued expansion, subdivision of circles The market size of China's sports and outdoor footwear industry is estimated to be around 440 billion yuan by 2025. After experiencing rapid growth before the pandemic, the growth rate has slowed to around 6% currently. Meanwhile, there have been significant changes in the internal structure: 1) growth in professional sports categories is stronger than in fashion sports, including areas such as running, outdoor, and niche ball sports, but the basketball market is under pressure; 2) the brand landscape has shifted from concentration to dispersion, with the industry's CR10 ratio decreasing from 76% in 2019 to 68% in 2025, showing a trend of domestic brands rising and niche categories gaining dominance. Company review in recent times: The rise and revitalization of the "national trend leader" From 2019 to 2021, the company's product and brand strengths resonated in the wave of the national trend, leading to significant revenue growth, with net profit reaching 4 billion yuan in 2021, 5.6 times higher than three years ago. From 2022 to 2024, as the national trend cools down and macroeconomic pressures increase, the company's channel structure and inventory issues have become apparent, entering an adjustment period. Revenue growth has slowed to single digits, and net profit margins have fallen from high double digits to around 10%. In 2025, with inventory control and channel optimization, the company's operating profit margins for direct sales channels are expected to bottom out and rise, while securing core marketing resources for the Olympic cycle until 2028, new products and new store formats are also expected to drive brand momentum. On the equity side, the LI NING family continues to increase its stake through VIVA GOODS, with its ownership increasing from 11.23% to 14.27%, showing long-term confidence. Product cycle: Fashion retreat, professional push, category refinement opens up new opportunities During the last brand momentum upswing period, the company's main categories were basketball and sports lifestyle, which have seen significant declines in recent years, with the proportion falling from a peak of 71% in 2021 to 46% in the first half of 2025. Running categories have risen strongly, with growth rates of 25%-45% in 2023-2024, accounting for 34% and becoming the company's largest category. The company's basketball shoes have stabilized in price after experiencing a decline in sales and prices, with new IP series sales increasing; the running shoe matrix continues to expand, with the "Super Resilient Capsule" technology released at the end of 2025 expected to boost continued growth in running shoes. At the same time, the company has launched the "Honored Gold Label" series and outdoor series, covering diverse demands in sports life, injecting new growth into categories. Channel layout: Initial effects of adjustments seen, subdivision of circles expected to open up incremental markets Since 2024, the company has actively reduced the scale of direct-operated stores and controlled store areas, leading to a rebound in the operating profit margins of direct-operated stores from a low point of around 10% in 2023 to the mid-double digits in the first half of 2025. Wholesale channels have remained stable, with a slight increase in the number of franchise stores, reflecting gradually recovering confidence among distributors. By the end of 2025, the company will launch the "Dragon Store" and outdoor specialty stores that blend Olympic elements, accurately entering circle market through store segmentation. If the brand momentum rises, improvements in store efficiency and discount rates in existing stores are expected to leverage operating leverage, driving a new round of channel expansion. Marketing efforts: From "windfall" to proactive initiative, preliminary results are showing LI NING's marketing expense ratio has been below 10% for many years. From 2025 onwards, they plan to increase it to the low double digits. The direction of marketing resources includes: signing with the Chinese Olympic Committee to secure core Olympic resources from 2025 to 2028; increasing investment in the running category, strengthening new product exposure through marathon events and elite athletes; the influence of basketball ambassadors Yang Hansan and Jimmy Butler is rising, potentially filling the marketing gap left after Wade's retirement. Social media operations are also being strengthened simultaneously, with an increase in the number of posts, followers, and interactive data.