Steady momentum
- Muted sales outlook in 1H22, with gradual recovery as COVID-19 cases subsides; we expect Li Ning to deliver sales CAGR of 17% in FY21-24E
- Shift to direct-to-consumer strategy, with channel expansion in direct retail and e-commerce platform
- Retain BUY, TP at HK$83.5
Investment Thesis
Near-term drag, with strong medium prospects.
Temporary drag from COVID resurgences has impacted the overall sportswear sector. Li Ning should see gradual reprieve through investment in its single-brand strategy and with lessor exposure in top tier cities. We forecast Li Ning to deliver earnings growth of 13% in FY22F, and recover to 23% in FY23F, driven by growing demand for Li-Ning core brand, and Li-Ning YOUNG.
Valuation more reasonable, with recovery ahead.
Li Ning is now trading at 26x FY23F PE, a premium to other domestic peers. Its valuation premium is justified given room to further catch up with the leading players, as well as potential improvement stemming from its shift to direct-to-consumer, which is still ongoing.
Solid market position with robust domestic support.
Li Ning has been a direct beneficiary of the rising premiumization trend with sub-brands under Li Ning, including Li-Ning Young, China Li-Ning, and Li-Ning 1990. Li Ning’s active collaborations with fashion brands and professional sports players should solidify the Group’s market position as a trendy, and culturally rich brand.
Valuation:
We value Li-Ning under DCF valuation, valued at HK$83.5/sh, equivalent to 32x FY23F PE, or a slight premium to its 3-year trading average at 30x. Now trading at 26x FY22F PE, we believe Li Ning has room to rerate with recovery ahead as COVID restrictions gradually lift. Buy.
Where we differ:
We are slightly more prudent on our sales assumptions factoring in impact from the recent COVID lockdowns.
Key Risks to Our View:
Intensifying competition, execution risk, management stability, macro weakness.