CICC: Maintains an outperform rating on TOPSPORTS (06110), lowers target price to HK$3.31.

CICC released a research report stating that considering the fluctuation in the terminal retail environment, it lowered the FY27 EPS forecast of TOPSPORTS (06110) by 9% to 0.20 yuan and introduced the FY28 EPS forecast of 0.21 yuan. The current stock price corresponds to a 12/12 times FY27/28 P/E ratio, maintaining an outperform industry rating. The corresponding target price was lowered by 15% to 3.31 Hong Kong dollars, corresponding to a 14/14 times FY27/28 P/E ratio, with an upside potential of 19%. CICC's main points are as follows: FY26 performance met expectations The company announced FY26 performance: revenue decreased by 4.7% year-on-year to 25.7 billion yuan, net profit attributable to mother decreased by 1.5% year-on-year to 1.3 billion yuan, meeting the bank's expectations. The company plans to distribute a final and special dividend of 0.15 yuan per share, with a full year dividend payout ratio of 137%, continuing to maintain a high dividend payout ratio. Focus on overall operations to improve efficiency, narrowing the revenue decline in 2HFY26 Revenue in 2HFY26 decreased by 3.7% year-on-year, narrowing the decline compared to the first half of the year. Retail revenue decreased by 2.4% year-on-year, while wholesale revenue decreased by 12.3% year-on-year. From a brand perspective, revenue from main brands decreased by 3.7% year-on-year, while revenue from other brands decreased by 3.3% year-on-year. The performance of professional sports categories was better than comprehensive and casual sports categories. In terms of channels, the company continued to promote overall operations to improve efficiency. Although 328 stores were closed in 2HFY26, the sales area at the end of the year decreased by 9.7% year-on-year, but the operating efficiency of individual stores improved significantly. At the same time, self-operated online channels maintained better growth than offline channels. Increase in online ratio affects gross profit margin, significant cost optimization effects The gross profit margin in 2HFY26 decreased by 0.7 percentage points to 35.3% year-on-year, mainly due to the increase in the proportion of high-discount online revenue, while the reduction of inventory provisions and the increase in retail revenue provided some support to the gross margin. Benefiting from channel optimization and refined management, cost improvements in the second half of the year were more pronounced, with the sales and distribution and general and administrative expenditure ratio in 2HFY26 decreasing by 1.4 percentage points year-on-year to 31.7%. Combined with improvements in net financing costs and tax expenses, the net profit margin in 2HFY26 increased by 0.6 percentage points year-on-year to 3.6%. Stable operational quality, continuous optimization of inventory control The company continues to focus on inventory efficiency, with inventory turnover days at the end of the fiscal year decreasing by 3.5 to 131.4 days year-on-year, reaching a low since FY23. The operating cash flow in FY26 was 2.7 billion yuan, a decrease of 27% year-on-year, mainly due to an increase in short-term accounts receivable due to the Spring Festival postponement. Excluding this disturbance, the bank expects a good improvement in cash flow. Free cash flow was 2.4 billion yuan, about 1.9 times net profit, providing strong support for high dividend payouts. Development trends In the new fiscal year, due to macroeconomic environment and adjustments in brand partner orders, the company expects some pressure on the revenue side. The management plans to maintain net profit same as last year and improve net profit margin through operational efficiency improvement and discount management. Risk warning: Intensified industry competition, unexpected adverse terminal retail environment, and underperformance in channel optimization.