UOB Kay Hian
July 15, 2025
Li Ning Faces Challenging 2025: Retail Sell-Through Misses Expectations, Full-Year Targets Under Pressure
Overview: Market Performance and Analyst Summary
Li Ning Co Ltd (2331 HK), one of China’s leading sportswear brands, is under the spotlight after reporting disappointing 2Q25 retail sell-through figures. The company’s performance in the second quarter fell short of management expectations, casting doubt over its ability to meet internal retail sell-through targets for the second half of 2025 and the full year. UOB Kay Hian maintains a BUY recommendation but trims the target price by 1% to HK\$18.90, reflecting a more cautious outlook.
Stock Snapshot
- Share Price: HK\$16.06
- Target Price: HK\$18.90 (previously HK\$19.00)
- Upside: +17.7%
- Market Cap: HK\$41,512.1m (US\$5,288.2m)
- Major Shareholders: Viva China (10.4%), Brown Brothers Harriman (6.0%)
- FY25 NAV/Share: RMB 10.65
- FY25 Net Cash/Share: RMB 7.33
Second Quarter 2025 Operational Highlights
- Retail sell-through growth: Low single-digit year-over-year (yoy) increase, below management expectations.
- Offline channel: Registered a low single-digit decline; retail channel down by mid single digits; wholesale channel up by low single digits.
- E-commerce channel: Retail sell-through grew by mid single digits.
- Channel Inventory: Inventory turnover improved to four months by end-2Q25 (from five months at end-1Q25).
- Discounting: Discounts deepened by low single digits both online and offline in 2Q25 and further in July 2025, pressuring full-year gross margin compared to 2024 (49.4%).
Outlook: Continued Headwinds for Retail Momentum
Retail sell-through momentum remained weak in July 2025, and management expects this trend to persist into 2H25, making full-year targets challenging to achieve. With the competitive landscape intensifying and channel adjustments ongoing, the company’s gross margins are expected to come under increased pressure due to deeper discounting.
Expense and Margin Trends
- A&P Expense Ratio: Expected to be higher in 2H25 versus 1H25, driven by planned campaigns related to the Chinese Olympic Committee.
- Net Margin: Forecasted to trend downward in 2H25 compared to 1H25, reflecting the increased expense ratio and weaker gross margins.
Key Financial Metrics and Forecasts
| Year to Dec 31 (RMBm) |
2023 |
2024 |
2025F |
2026F |
2027F |
| Net Turnover |
27,598 |
28,676 |
28,688 |
29,608 |
30,560 |
| EBITDA |
6,157 |
6,379 |
5,782 |
6,306 |
6,663 |
| Operating Profit |
3,559 |
3,678 |
3,357 |
3,743 |
3,999 |
| Net Profit (adj.) |
3,187 |
3,013 |
2,735 |
3,036 |
3,246 |
| EPS (Fen) |
122.7 |
116.5 |
105.8 |
117.4 |
125.5 |
| PE (x) |
12.0 |
12.6 |
13.9 |
12.5 |
11.7 |
| P/B (x) |
1.6 |
1.4 |
1.4 |
1.3 |
1.2 |
| EV/EBITDA (x) |
5.3 |
4.8 |
5.1 |
4.5 |
4.1 |
| Dividend Yield (%) |
3.7 |
4.0 |
3.6 |
4.0 |
4.3 |
| Net Margin (%) |
11.5 |
10.5 |
9.5 |
10.3 |
10.6 |
| ROE (%) |
13.1 |
11.9 |
10.2 |
10.8 |
10.9 |
Earnings Revision and Risks
- 2025/26 earnings forecasts have been revised down by 5% and 4% respectively, with revenue forecasts unchanged.
- Gross margin estimates are maintained, but selling and distribution expense ratios are raised by 0.6ppt/0.5ppt for 2025/26 to account for higher A&P spending.
- Key downside risks include lower-than-expected retail sell-through growth and further discounting pressure.
Valuation and Recommendation
- The new DCF-based target price is HK\$18.90, implying 16.6x 2025F PE and 15.0x 2026F PE.
- The stock is currently trading at 13.9x 2025F PE and 12.5x 2026F PE.
- BUY recommendation is maintained, but investors should note ongoing pressure on earnings quality.
Sell-Through Growth Rate Snapshot by Channel (YoY)
| Quarter |
Overall Platform |
Offline |
Retail |
Wholesale |
E-commerce |
| 1Q25 |
+ low-SD |
+ low-SD |
– low-SD |
+ low-SD |
+ low-teens |
| 2Q25 |
+ low-SD |
– low-SD |
– mid-SD |
+ low-SD |
+ mid-SD |
| 4Q24 |
+ high-SD |
+ mid-SD |
– low-SD |
+ mid-SD |
+ mid-teens |
| 3Q24 |
– mid-SD |
– high-SD |
– mid-SD |
– high-SD |
+ mid-SD |
| 2Q24 |
– low-SD |
– mid-SD |
flat |
– high-SD |
+ high-SD |
| 1Q24 |
+ low-SD |
– low-SD |
+ mid-SD |
– mid-SD |
+ low-twenties |
SD = single digits; MD = mid digits
Profit and Loss, Balance Sheet, and Cash Flow Highlights
| Financial Highlights (RMBm) |
2024 |
2025F |
2026F |
2027F |
| Net Turnover |
28,676.0 |
28,688.0 |
29,608.0 |
30,560.0 |
| EBITDA |
6,379.0 |
5,782.0 |
6,306.0 |
6,663.0 |
| Net Profit (adj.) |
3,013.0 |
2,735.0 |
3,036.0 |
3,246.0 |
| Cash & Short-term Investment |
7,499.0 |
8,231.0 |
9,377.0 |
10,712.0 |
| Shareholders’ Equity |
26,104.0 |
27,422.0 |
28,994.0 |
30,654.0 |
| Dividend Payments |
(1,444.0) |
(1,417.0) |
(1,465.0) |
(1,586.0) |
| Net Cash Inflow/Outflow |
2,104.0 |
733.0 |
1,146.0 |
1,334.0 |
Key Metrics and Ratios
- EBITDA Margin (%): 22.2 (2024), 20.2 (2025F), 21.3 (2026F), 21.8 (2027F)
- Net Margin (%): 10.5 (2024), 9.5 (2025F), 10.3 (2026F), 10.6 (2027F)
- ROE (%): 11.9 (2024), 10.2 (2025F), 10.8 (2026F), 10.9 (2027F)
- Net Debt/(Cash) to Equity (%): (71.9) (2024), (70.6) (2025F), (71.1) (2026F), (71.7) (2027F)
- Turnover Growth (%): 3.9 (2024), 0.0 (2025F), 3.2 (2026F), 3.2 (2027F)
- EPS Growth (%): (5.0) (2024), (9.2) (2025F), 11.0 (2026F), 6.9 (2027F)
Conclusion: Investment Perspective
Li Ning continues to navigate a difficult retail environment in 2025, facing headwinds from slower sell-through, deeper discounting, and rising marketing expenses. While the company remains fundamentally sound with a strong balance sheet and ongoing brand initiatives, investors should be aware of the near-term earnings pressure. UOB Kay Hian’s maintained BUY rating and revised HK\$18.90 target price reflect cautious optimism, but also a recognition of the challenges ahead. Investors should closely monitor retail momentum and the effectiveness of channel and marketing strategies through the remainder of the year.
