Morgan Stanley: The market expects LI NING's performance to turn around and raises its rating to "hold"

Morgan Stanley's research report states that, in a basic scenario, the target price for LI NING (02331) based on a target P/E ratio of 17 times last year's earnings per share is HK$25. The expected compound annual growth rate for sales for LI NING from 2025 to 2027 is 6%, and the profit compound annual growth rate is 7%; with a rating of "hold". LI NING is expected to achieve moderate revenue growth last year (relative to previous guidance being flat), with the net profit margin expected to remain at a high single-digit level, indicating that the market consensus on last year's net profit is likely to be raised. Morgan Stanley points out that the cold weather around the peak shopping season of the Spring Festival may accelerate sales growth. Morgan Stanley believes that the market's profit forecast for LI NING last year will be raised to the level predicted by the bank, which is 2.75 billion RMB. This implies that the net profit margin in the second half of last year may have increased year-on-year. Despite increased advertising and promotional expenses and larger discounts, LI NING's operating profit margin remained flat year-on-year last year, indicating an improvement in operational efficiency. Considering that the major shareholders increased their holdings last year, Morgan Stanley believes that the market's expectations for LI NING's performance turnaround will rise.