CICC: Maintains REGINA MIRACLE (02199) at outperform rating with a target price of 2.38 Hong Kong dollars.

CICC released a research report stating that considering the additional seniority compensation, it lowered the FY27 profit forecast for REGINA MIRACLE (02199) by 14% to HK$313 million. It introduced a FY28 profit forecast of HK$600 million, with corresponding P/E ratios of 7x and 3x for FY27 and FY28 respectively, maintaining an outperform rating. Considering the company's clear long-term profit recovery path, it maintained a target price of HK$2.38, corresponding to P/E ratios of 9x and 5x for FY26 and FY27 respectively, with a 38% upside potential from the current stock price. CICC's main points are as follows: FY26 performance meets market expectations The company announced FY26 (ending March 31, 2026) performance: revenue of HK$7.7 billion, a year-on-year decrease of 1.6%; attributable net profit of HK$283 million, a year-on-year increase of 53.9%, meeting market expectations. The company declared a dividend of 11 HK cents per share for the whole year, with a dividend payout ratio of 47.6%. Sporting goods sector continues to grow, lingerie sector turns positive in 2HFY26 FY26 sports products revenue increased by 5.1% year-on-year to HK$3.08 billion. Excluding the high base effect brought by the launch of new sports products by an American lingerie brand last year, the sports sector saw a double-digit year-on-year growth; with Bonding sportswear revenue increasing by about 25% year-on-year to HK$1.46 billion, expanding to various international sports brands such as running and high-end outdoor activities. FY26 intimate lingerie revenue decreased by 1.1% year-on-year to HK$4.2 billion, with American brands seeing double-digit growth while Japanese brands declined year-on-year, and 2HFY26 sector revenue increased by 5.2% year-on-year. FY26 cup and other/consumer electronics accessory revenue decreased by 8.1%/50.3% year-on-year to HK$230 million/200 million. Main business gross margin under pressure, cost control steady, Victoria's Secret China's contribution exceeds expectations FY26 gross margin decreased by 0.8 percentage points year-on-year to 22.5%, due to tariff fluctuations and the early stage of the Zhongshan factory; the combined sales/management/R&D expense ratio remained flat year-on-year at 14.2%, the financial expense ratio decreased by 1.1 percentage points year-on-year to 3.2%, benefiting from the global interest rate decline. For Victoria's Secret China, FY26 revenue increased by 42.4% year-on-year to HK$2.8 billion, net profit increased by 512.7% year-on-year to HK$525 million (including a one-time confirmation of deferred tax assets of HK$140 million), resulting in a significant increase in REGINA MIRACLE's share of joint venture profit to HK$237 million (FY25: HK$27 million). Overall, FY26 net profit margin increased by 1.3 percentage points year-on-year to 3.7%. Development trends The bank expects the intimate lingerie sector to achieve stable growth in the US under the leadership of major brands, while the sports product sector is expected to achieve double-digit growth with the expansion of Bonding clothing. In addition, the company is expected to provide an additional seniority compensation of HK$150 million in FY27. However, the bank expects that as tariff fluctuations are gradually absorbed and Victoria's Secret China continues to achieve growth through new products and marketing efforts, there may still be some profit increase potential. Risk warning: weak end demand, slower-than-expected ramp-up of production capacity, fluctuations in raw material prices.