We continue to like Li Ning, thanks to: 1) industry leading performance in 1Q20 and healthy recovery in early Apr 2020, as well as 2) solid capital management (We believe the inventory level is healthy and manageable). Thus we reiterate BUY and fine-tuned TP to HK$29.73, based on unchanged 30x FY21E P/E.
- Li Ning retail sales was resilient in 1Q20, slight beat and industry leading. Li Ning retail sales fell by high-teens YoY in 1Q20, which is slightly above CMBIS est. of -21%, which is more resilient than Anta (-ve low 20%), Pou Sheng (-25%) and Kappa (-ve high 20%), second to FILA (-ve MSD).
- Solid e-commerce offset the relatively soft wholesale and direct retail. We attributed the beat to robust e-commerce, which still managed to grow by low-teens YoY in 1Q20, slowing down mildly from low 40% growth in 4Q19. Drags were mainly from direct retail/ wholesale channels, declined by mid 30%/ high-teens in 1Q20, worsen from high-teens/ low 40% growth in 4Q19.
- No 1Q20 SSSG data but understandable. Li Ning did not report SSSG for 1Q20, we believe store base was distorted by temporary store closures under COVID-19 crisis, and hence this calculation become less meaningful.
- 4Q20 trade fair sales growth to be announced on interim result and we are not worried. Some investors may be worried about the suspension of the reporting of trade fair sales number, but we are less concerned, because: 1) trade fair was delayed (usually in late Mar) and numbers are not ready yet and 2) sell-through rate for winter clothing was very high given the robust retail sales growth back in 4Q19 and early CNY in 2020.
- ~200 stores were closed in 1Q20, but we find the impact on sales and net profit limited. Li Ning had closed 224 stores (26/ 198 for self-owned/ wholesale) in 1Q20, representing a 3.5% decline vs 4Q19. Again, we are not worried because: 1) these stores tended to be underperforming which were usually loss making and had a much lower sales per store, and 2) the Company is still targeting 20-30 new stores in FY20E for Li Ning core brand.
- Maintain BUY and lifted TP to HK$ 29.73. We maintain BUY and fine-tuned TP to HK$ 29.73, based on 30x FY21E P/E (unchanged), given a 3-year adjusted NP CAGR of 31%. The counter is attractive, trading at 25x FY21E P/E. We adjusted our FY20E/ 21E/ 22E EPS estimates by -4.0%/ +0.3%/ +0.8%, to factor in better wholesale/ weaker direct retail in 1Q20.
