Guosen Securities has released a research report expressing optimism that Li-Ning's (02331) rebounding brand momentum will drive new growth opportunities. The firm forecasts the company's net profit attributable to shareholders for 2025-2027 to be RMB 2.40 billion, RMB 2.68 billion, and RMB 3.06 billion, respectively, highlighting confidence in the performance boost expected from upcoming new products and marketing strategies. After comprehensive consideration of the anticipated operational turnaround for the company as a leading domestic sportswear brand, its long-term profit growth potential, and its ample cash reserves, Guosen Securities maintains a fair value range of HK$21.20-22.30 for the company. This corresponds to a price-to-earnings ratio of approximately 19-20 times for 2026, and the "Outperform" investment rating is reaffirmed.
The sportswear industry continues to expand while undergoing segmentation into distinct consumer circles. China's sports and outdoor apparel and footwear market is projected to reach a scale of approximately RMB 440 billion by 2025. Following pre-pandemic rapid growth and subsequent pandemic-related fluctuations, growth has now moderated to around 6%, accompanied by significant internal structural shifts: 1) Growth in professional sports categories, including running, outdoor activities, and niche ball sports, is stronger than in fashion sportswear, although the basketball market faces pressure; 2) The brand landscape is shifting from concentration to fragmentation, with the combined market share of the top 10 brands (CR10) declining from 76% in 2019 to 68% in 2025, reflecting a trend from the rise of domestic brands to the dominance of specialized vertical players.
A review of the company's recent situation reveals the stumble and subsequent revitalization of this "standard-bearer of 'Guochao'" (China-chic). Between 2019 and 2021, Li-Ning experienced a powerful synergy between product strength and brand power amid the 'Guochao' dividend, leading to substantial earnings growth; its 2021 net profit reached RMB 4.0 billion, a remarkable 5.6-fold increase from three years prior. From 2022 to 2024, as the 'Guochao' trend cooled and macroeconomic pressures mounted, issues with the company's channel structure and inventory became prominent, ushering in a period of adjustment where revenue growth slowed to single digits and the net profit margin retreated from the high double-digits to just over 10%. In 2025, following inventory control and channel optimization efforts, the operating profit margin for the company's direct-operated stores has bottomed out and begun to recover. Concurrently, the company has secured core marketing resources for the Olympic cycle leading up to 2028, and new products and store formats are beginning to contribute, signaling potential for a revival of brand momentum. At the shareholder level, the Li-Ning family has consistently increased its stake through Feifan Lingyue, raising its holding from 11.23% to 14.27%, demonstrating long-term confidence.
The product cycle is shifting from fashion receding to professionalism driving growth, with category refinement unlocking new opportunities. During the previous phase of rising brand momentum, Li-Ning's dominant categories were basketball and sports lifestyle, which have significantly contracted in recent years, their share dropping from a peak of 71% in 2021 to 46% in the first half of 2025. Conversely, the running category has experienced a strong surge, growing 25%-45% during 2023-2024 and now constituting 34% of sales, making it the company's largest category. After experiencing declines in both volume and price, Li-Ning's basketball shoe prices are gradually stabilizing, with sales of new IP series climbing. The running shoe matrix continues to expand, and the "Super Beng Capsule" technology launched at the end of 2025 is expected to further propel growth momentum in running shoes. Simultaneously, the company has introduced the "Glory Gold Label" series and outdoor series, catering to diverse pan-sports lifestyle needs and injecting new growth increments into its product categories.
Adjustments in channel strategy are beginning to show results, and refined targeting of consumer circles is expected to unlock incremental markets. Since 2024, the company has proactively reduced the scale of its directly operated stores and controlled store area, leading to a recovery in the direct-operated store operating profit margin from a trough of around 10% in 2023 to mid-teens in the first half of 2025. The wholesale channel has remained stable, with a slight increase in the number of franchised stores, reflecting a gradual restoration of distributor confidence. At the end of 2025, the company launched "Dragon Stores" incorporating Olympic elements and specialized outdoor stores, aiming to precisely target specific consumer circles through store format diversification. Should brand momentum continue to recover, improvements in same-store sales efficiency and discount rates at existing stores could leverage operational efficiency and potentially drive a new round of channel expansion.
Marketing efforts are evolving from relying on "windfall dividends" to proactive initiatives, with preliminary effects becoming visible. Li-Ning's marketing expense ratio has remained below 10% for many years but is planned to increase to the low double-digits starting in 2025. Key areas for enhanced marketing resource allocation include: signing with the Chinese Olympic Committee to secure core marketing resources for the 2025-2028 Olympic cycle; increasing investment in the running category, boosting exposure for new products through marathon events and elite athletes; and in basketball, the rising influence of endorsers Yang Hansong and Jimmy Butler is expected to help fill the marketing void left by Dwyane Wade's retirement. Social media operations are also being strengthened, with synchronized growth in the number of official account posts, follower count, and user engagement metrics.
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