CICC: Maintaining Outperform rating on 361 DEGREES (01361), raising target price to HKD 7.08.

CICC released a research report stating that considering the excellent cost control of 361 DEGREES (01361), the EPS forecast for 2026/27 was raised by 6%/7% to 0.72/0.79 RMB. The current stock price corresponds to 7/6 times P/E for 2026/27, maintaining an outperform industry rating. The target price was raised by 5% to 7.08 Hong Kong dollars, corresponding to 9 times P/E for 2026, with a 24% upside potential from the current stock price. Management disclosed that the order performance in the first three quarters of 2025 was excellent, with order growth mainly driven by volume, and they remain optimistic about the full-year operating performance. CICC's main points are as follows: Better performance in 2025 than the bank's expectations The company announced its 2025 performance: revenue increased by 11% to 11.146 billion RMB, net profit attributable to the parent increased by 14% to 1.309 billion RMB, which exceeded the bank's expectations, mainly due to good cost control. The company declared a final dividend of 11.3 HK cents per share, representing a payout ratio of approximately 45% for the full year. Stable revenue growth, impressive performance of offline super stores and online channels In 2025, the main brand, 361 DEGREES, saw revenue increase by 9% to 8.052 billion RMB, with footwear and apparel sales increasing by 8%/11%. 361 DEGREES Kids saw revenue increase by 10% to 2.583 billion RMB, with footwear and apparel sales increasing by 29%/-8%. By the end of 2025, the company had opened 127 offline super stores, with the expectation of surpassing 200 stores in 2026, with over 80% of super stores currently being profitable. In terms of online channels, the revenue from e-commerce channels increased by 26% to 3.286 billion RMB in 2025, accounting for 30% of total revenue (compared to 26% in 2024). Good cost control in 2025, continued investment in events in 2026 In 2025, the company's gross profit margin was 41.5%, flat year-on-year, with the main brand's gross margin increasing by 2.0ppt, while the kids' clothing gross margin decreased by 3.7ppt. The company's sales expense ratio decreased by 1.8ppt to 20.2% in 2025; the management expense ratio increased by 0.8ppt to 7.7%, mainly affected by donation expenses; profit increased by 14% to 1.309 billion RMB. In 2026, the company continued to invest in event resources, becoming a partner of the Asian Games for the fifth consecutive year and signing a contract with the WTT World Table Tennis League, continuing to strengthen brand building. Improved operational quality, significant increase in operating cash flow Benefiting from the company's effective accounts receivable management, the accounts receivable turnover days for the company in 2025 remained stable at 149 days, the same as the previous year. The inventory scale in 2025 decreased by 0.4 billion RMB compared to 2024. The operating cash flow in 2025 increased by 1067% to 810 million RMB (compared to 70 million RMB in 2024). Risk Warning: Increased industry competition, lower-than-expected retail environment, and slower store opening than expected.