报告名称：Li Ning Co.(02331.HK)Addressing a 3Q retail sales slowdown；EPS recovery still on
报告类型：港股研究
报告日期：2015-10-19
研究机构：高盛集团有限公司
股票名称：李宁
股票代码：02331
页数：9
简介：What's changed
Li Ning's 3Q SSSG slowed to mid-single digits from low-teens in 2Q,which has raised investor concerns on its earnings recovery and potentialchannel inventory buildup. While it does indicate weaker retail demand,we believe it is important to view the slowdown in the context of theoverall discretionary/sportswear space, which showed weaker datapointsoverall. With continued double-digit topline growth, coupled with costcuttingmeasures, we still expect Li Ning to turn profitable in 2H15, andOPM to improve to 7%/9% in 16E/17E. We lower our 2015E/16E/17E EPS toHK$0.01/0.21/0.31 from HK$0.05/0.26/0.33 to factor in weaker 3Q sales.
Implications
Maintain Buy. Many discretionary categories slowed in Jul-Aug andsportswear was no exception. Most sportswear companies haveexperienced weaker trends in 3Q, including international leaders; Nike andAdidas distributors such as Belle and Pou Sheng have seen a 3-6 ppt stepdownin sales growth in the latest quarter (vs c.7 ppt for Li Ning). Li Ning’sSSSG was the weakest in Jul/Aug, recovering in Sep. If this upward trendcontinues, we see potential for improvement in 4Q SSSG, which couldprovide more clarity as to whether the weakness is cyclical or structural.The other tailwind for 2H is new store contribution. We estimate a step-upin new store openings in 2H (+356) vs 1H (+119), which may compensatefor lower SSSG. Trade fair orders accelerated in 2Q16 to mid-teens, whichshows improved distributor confidence in its new products.
Valuation
We lower our 12-month TP to HK$4.7 from HK$4.9, still based on 17X2017E P/E, discounted back by 1yr. Li Ning is trading at 0.6X 2016E P/Sales,close to trough levels of loss-making turnaround brands (0.5-0.7x).
Key risks
Weaker sportswear demand in China; worse than expected cost control.

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