UOB Kay Hian
Date of Report: Tuesday, 15 July 2025
Li Ning Faces Retail Headwinds in 2025: Margin Pressures, Discounting, and Strategic Outlook
Overview: Li Ning’s 2Q25 Retail Performance Disappoints, Full-Year Targets at Risk
Li Ning (2331 HK), one of China’s leading sportswear brands, has released its 2Q25 operational updates, revealing a challenging retail landscape. Despite maintaining a “BUY” recommendation, UOB Kay Hian has trimmed its target price by 1% to HK\$18.90, reflecting concerns over weaker-than-expected sell-through momentum, deepening discounts, and mounting pressure on margins and earnings.
Stock Snapshot and Key Data
- Share Price: HK\$16.06
- Target Price: HK\$18.90 (previously HK\$19.00)
- Upside Potential: +17.7%
- Market Cap: HK\$41,512.1m (US\$5,288.2m)
- Shares Outstanding: 2,584.8m
- 3-Month Avg. Daily Turnover: US\$40.3m
- 52-Week Range: HK\$21.00 / HK\$12.56
- Major Shareholders: Viva China (10.4%), Brown Brothers Harriman (6.0%)
- FY25 NAV/Share: RMB 10.65
- FY25 Net Cash/Share: RMB 7.33
2Q25 Operational Update: Sell-Through Growth Misses Expectations
- Retail sell-through grew by only low single digits year-on-year, missing management’s expectations.
- Offline channel declined by low single digits; retail channel dropped by mid single digits; wholesale channel saw low single-digit growth.
- E-commerce performed better, achieving mid single-digit growth.
- Retail channel weakness was attributed to ongoing channel adjustments.
- Sell-through momentum remained under pressure into July 2025, casting doubt on achieving 2H25 and full-year targets.
Discounting and Margin Pressure Intensify
- Both online and offline discounts deepened by low single digits in 2Q25 and further in July, pressuring gross margins.
- Full-year gross margin is expected to fall below 2024’s 49.4% due to continued discounting and weak sales traction.
- Channel inventory turnover improved, dropping to four months by end-2Q25 from five months at end-1Q25.
Expense Ratios and Net Margin Outlook
- Advertising & Promotion (A&P) expense ratio is expected to rise in 2H25 due to planned campaigns around the Chinese Olympic Committee, remaining in the low-teens for the full year.
- Net margin is projected to decline in 2H25 compared to 1H25, reflecting higher A&P spending and gross margin pressure.
Key Financials at a Glance
| Year (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 (Adjusted) |
3,187 |
3,013 |
2,735 |
3,036 |
3,246 |
| EPS (Fen) |
122.7 |
116.5 |
105.8 |
117.4 |
125.5 |
| P/E (x) |
12.0 |
12.6 |
13.9 |
12.5 |
11.7 |
| 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 |
| Net Debt/(Cash) to Equity (%) |
(73.8) |
(71.9) |
(70.6) |
(71.1) |
(71.7) |
Performance Breakdown: Sell-Through Growth by Channel
Quarterly sell-through growth rates underscore the volatility and recent slowdown across Li Ning’s business lines:
| Quarter |
Overall |
Offline |
Retail |
Wholesale |
E-commerce |
| 1Q25 |
+ low single digits |
+ low single digits |
– low single digits |
+ low single digits |
+ low teens |
| 2Q25 |
+ low single digits |
– low single digits |
– mid single digits |
+ low single digits |
+ mid single digits |
Earlier periods showed much higher growth, highlighting the current slowdown. Notably, the offline retail channel has been persistently weak, while e-commerce remains a relative bright spot.
Earnings Revision and Risk Factors
- 2025/26 earnings forecasts have been reduced by 5% and 4% respectively, reflecting higher expected A&P costs.
- Revenue and gross margin forecasts for 2025/26 remain unchanged.
- Risks include lower-than-expected retail sell-through growth and further deepening of discounts.
Valuation and Recommendation
- BUY rating maintained; target price slightly lowered to HK\$18.90.
- Target price implies 16.6x 2025F P/E and 15.0x 2026F P/E.
- Stock currently trades at 13.9x 2025F P/E and 12.5x 2026F P/E, suggesting valuation upside if business conditions stabilize.
Profit & Loss, Balance Sheet, and Cash Flow Highlights
| Year Ended 31 Dec (RMBm) |
2024 |
2025F |
2026F |
2027F |
| Net Turnover |
28,676 |
28,688 |
29,608 |
30,560 |
| EBITDA |
6,379 |
5,782 |
6,306 |
6,663 |
| Net Profit (Adj.) |
3,013 |
2,735 |
3,036 |
3,246 |
| Operating Cash Flow |
5,268 |
4,000 |
4,461 |
4,770 |
| Ending Cash & Equivalents |
7,499 |
8,231 |
9,377 |
10,712 |
| Dividend Payments |
(1,444) |
(1,417) |
(1,465) |
(1,586) |
Key Metrics and Outlook
- Net Margin: Expected to fall to 9.5% in 2025F from 10.5% in 2024, before stabilizing above 10% through 2027F.
- ROE: Projected to decrease to 10.2% in 2025F, recovering to 10.9% by 2027F.
- Debt: The company maintains a net cash position, with net debt to equity expected to remain around -70% over the forecast period.
Conclusion: Navigating Headwinds with Strategic Discipline
Li Ning faces a demanding environment in 2025, as retail momentum falters and margin pressures mount amid a competitive landscape. While the company demonstrates ongoing operational discipline—evidenced by improved inventory turnover and robust e-commerce growth—the likelihood of meeting full-year sell-through and margin targets is challenged by continued discounting and rising promotional expenses. Nevertheless, the stock’s current valuation presents potential upside for investors positioned for a turnaround once retail conditions improve and Olympic-related campaigns enhance brand visibility.
