Highlights

• Li Ning’s 1H26 net profit was better than feared. Looking ahead, with the challenging consumption environment, management lowers the full-year revenue growth guidance to low single-digit from high single-digit.
   

• In addition, with the stepped up A&P expenses in 2H26, primarily driven by Stephen Curry’s partnership, net margin expectation is lowered to mid- to high single-digit range from the previously high single-digit range.
   

• Maintain BUY, cut target price by 6% to HK$21.80.
   

Analysis

• 1H26 net profit better than feared. Li Ning reported 1H26 revenue of Rmb15,235m (+3% yoy; +3% hoh). Gross margin was 50.9% (+0.9ppt yoy, +3.0ppt hoh), as cost optimisation in the wholesale and e-commerce channels more than offset deeper discounts in the direct retail channel. Operating profit was Rmb2,452m (+1% yoy, +68% hoh), with an operating margin at 16.1% (-0.4ppt yoy, +6.2ppt hoh). The yoy decline in operating margin was primarily due to higher advertising and promotion expenses (A&P ratio at 11.2%, +2.2ppt yoy), given that the company continued to focus on Olympic and national team partnerships, while deepening professional sports areas. Net profit was Rmb1,816m (+5% yoy, +52% hoh), 5% above VA consensus, with a net margin at 11.9% (+0.2ppt yoy, +3.8ppt hoh), thanks to lower income taxes (effective tax rate lowered to 25.8% from 33.3% in 1H25). Net operating cash inflow was Rmb954m, down 60% yoy, primarily due to rising A&P expenses, including prepayment for Stephen Curry’s partnership, and lower government subsidies. The company declared an interim dividend of Rmb35.12 cents per share, implying a payout ratio of 50% (vs 50% in 1H25).