Huatai Research raised its target price for Li Ning (02331) to HK$23 from HK$14 and upgraded its rating to "buy" from "hold".
The research house said Li Ning's management, during the analyst briefing, revised up 2019 guidance, and expected low-to-mid-twenties top-line growth (previous: high-teens growth) and 8.5-9.0% net margin (previous: 7.5-8.0%).
Huatai also revised up its earnings forecasts by 9%/23% to RMB1.4/1.7bn in 2019/20 as it turned more positive on top-line growth and margin trend in 2020, given Li Ning's better brand image, excellent working capital, and improvement in distributors' profitability.
Huatai noted several factors that could further drive revenue growth: (1) better wholesale discounts; (2) channel inventory at store level reduced to 3.7 months in June 2019 from 4.2 months in December 2018; (3) new products account for 74% of channel inventory; and (4) 1Q 2020 trade fair orders registering high-teens year-on-year growth.
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