CICC has released a research report, stating that considering ongoing fluctuations in the end-consumer retail environment, it has lowered its FY27 EPS forecast for TOPSPORTS (06110) by 9% to RMB 0.20, while introducing an FY28 EPS forecast of RMB 0.21. The current stock price corresponds to a P/E ratio of 12x for both FY27 and FY28. The firm maintains an Outperform rating on the stock. Accordingly, the target price has been reduced by 15% to HK$3.31, representing a P/E of 14x for both FY27 and FY28, with an upside potential of 19%.
CICC's key views are as follows:
FY26 Performance Meets Expectations The company reported FY26 results: revenue decreased by 4.7% year-on-year to RMB 25.7 billion, while net profit attributable to shareholders declined by 1.5% to RMB 1.3 billion, aligning with expectations. The company proposed a final and special dividend of RMB 0.15 per share, with a full-year payout ratio of 137%, continuing its high dividend distribution policy.
Focus on Omnichannel Operations for Efficiency Improvement; 2HFY26 Revenue Decline Narrows In the second half of FY26, revenue fell by 3.7% year-on-year, a narrower decline compared to the first half. Retail revenue decreased by 2.4%, while wholesale revenue dropped by 12.3%. From a brand perspective, revenue from core brands declined by 3.7%, while other brands saw a 3.3% decrease. The professional sports category outperformed the comprehensive and casual sports categories. In terms of channels, the company continued to enhance omnichannel operational efficiency. Although 328 net stores were closed in 2HFY26, leading to a 9.7% year-on-year decrease in total sales area by year-end, single-store operational efficiency showed significant improvement. Meanwhile, self-operated online channels maintained growth that outpaced offline channels.
Online Sales Mix Affects Gross Margin; Cost Optimization Yields Significant Results The gross margin for 2HFY26 decreased by 0.7 percentage points year-on-year to 35.3%, primarily due to a higher proportion of discounted online sales. However, reduced inventory provisions and an increased share of retail revenue provided some support to the margin. Benefiting from channel optimization and refined management, the company's cost improvement was more pronounced in the second half. The expense ratio for sales, distribution, general, and administrative costs in 2HFY26 decreased by 1.4 percentage points year-on-year to 31.7%. Combined with improvements in net financing costs and tax expenses, the net profit margin attributable to shareholders for 2HFY26 increased by 0.6 percentage points year-on-year to 3.6%.
Stable Operational Quality; Continued Optimization of Inventory Management The company remains focused on inventory efficiency, with inventory turnover days decreasing by 3.5 days year-on-year to 131.4 days at the end of the fiscal year, marking a low point since FY23. Operating cash flow for FY26 was RMB 2.7 billion, down 27% year-on-year, mainly due to a temporary increase in receivables affected by the timing of the Lunar New Year holiday. Excluding this factor, cash flow is expected to have improved significantly. Free cash flow amounted to RMB 2.4 billion, approximately 1.9 times the net profit for the same period, providing strong support for the high dividend payout.
Development Trends In the new fiscal year, the company anticipates pressure on revenue due to macroeconomic conditions and adjustments in orders from brand partners. Management plans to maintain year-on-year stability in net profit amount and improve net profit margin through enhanced operational efficiency and discount management.
Risks: Increased industry competition, weaker-than-expected end-consumer retail environment, and slower-than-expected channel optimization.
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