Li Ning (2331.HK, Buy) 1H22 results above market expectations
- 1H22 net earnings growth of 11.6% to Rmb2,189m, accounted for 46.5% of consensus estimates (48.5%), came above market expectations on stronger-than-expected sales trend despite recurring lockdowns in 2Q.
- Revenue rose 21.7% to Rmb12,409m in 1H22, driven by strong 1Q performance.
- Our last rating was a BUY, with TP at HK$83.50
- Please head to Insight Direct for further comment.
Results Summary
- 1H22 net earnings growth of 11.6% to Rmb2,189m, accounted for 46.5% of consensus estimates (48.5%), came above market expectations on stronger-than-expected sales trend despite recurring lockdowns in 2Q.
- Revenue rose 21.7% to Rmb12,409m in 1H22, driven by strong 1Q performance.
- Gross profit margin contracted 5.9ppt to 50% due to product mix, higher procurement costs.
- EBITDA rose 8.4% to Rmb3,421m. EBITDA margin contracted 3.4ppt to 27.7%
- Same-store-sales trend. Overall same store sales contracted by low-teens in 2Q (1Q: low-twenties growth), mainly dragged by the offline channel where SSSG reported a high-teens decline in 2Q. E-commerce reported a low-single digit growth in SSS in 2Q (1Q: mid-30s). In 1H22, overall same-store sales rose low-single digit. By channel, retail still achieved low-single digit growth, wholesale contracted by low-single digit, and e-commerce rose by mid-teens.
- By product category. By product segment, footwear sales surged 47% to Rmb6,759m, followed by apparel (-3%) and equipment and accessories (+37%).
- Point of sales. COVID-19 impacted the store opening pace with a mild contraction of 25 POS to 7,112 POS as of Jun’22.
- Channel mix. While retail channel was impacted by the lockdowns, DTC helped to balance out the impact. Sell-through mix remains firm whereas new product accounts for 91% of total sales (1H21: 15%)
- Strong inventory management. Cash conversion cycle rose slightly by 6 days to 21 days. Inventory turnover (inclusive of platform & warehouse inventory) rose slightly to 3.6 months (1H21: 3.1 months). In terms of inventory mix, aging structure remains healthy with 6-months or less accounting for 88% of inventory mix (1H21: 83%).
- Net cash position stood at Rmb10,575m as of Jun’22 (Dec’21: Rmb14,745m)
- Li Ning believes 2H22 outlook remains uncertain due to covid lockdowns and uncertainty in the economy environment. The Company maintains its earlier guidance to sustain topline growth 10-20%, and net profit margin between 10-20%.
- We believe Li Ning has achieved better than expected results than peers despite tough conditions due to lockdowns. With stronger sales trend, Li Ning was able to maintain strong working capital management control with inventory turnover rising slightly to 3.6 months in 1H22. We maintain a BUY call on Li Ning, with TP at HK$83.5
