Premium Product Focus And Digital Channels Will Build Future Success

Key Takeaways

• Emphasis on premium products, innovation, and digital channels is strengthening Li Ning's brand, pricing power, and profitability while reducing reliance on physical stores.
  
• Efficient inventory, market penetration, and lifestyle shifts are driving sustainable revenue growth and supporting flexible reinvestment in brand and expansion efforts.
  
• Structural shifts toward e-commerce, rising inventory pressures, and heavy reliance on the domestic market expose Li Ning to increased margin compression and growth risks amid intensifying competition.

Catalysts

A sports brand company, engages in the research and development, design, manufacture, marketing, distribution, and retail of sporting goods in the People’s Republic of China.

• Accelerating focus on high-margin professional and premium product categories-including running and fitness-combined with strong brand partnerships (e.g., with the Chinese Olympic Committee) is expected to elevate Li Ning's pricing power, drive higher average selling prices, and improve long-term net margins and profitability.
  
• Increased investment and success in core product innovation (notably advanced footwear technology and expansion in emerging sports such as outdoor tennis and pickleball) position Li Ning to capture a larger, more engaged base of health
• and fitness-focused consumers, supporting ongoing revenue growth in alignment with shifts toward active and wellness-driven lifestyles.
  
• Expansion and optimization of high-efficiency e-commerce and direct-to-consumer channels (with e-commerce now at 31% of revenue and growing 10%–20% YoY) should continue to boost gross margins, improve customer engagement, and reduce reliance on physical store traffic, supporting sustainable earnings growth.
  
• Prudent inventory management, coupled with product mix enrichment and the closure of inefficient offline stores, positions Li Ning for improved working capital efficiency and potentially stronger free cash flow, providing greater flexibility for reinvestment in brand and growth initiatives.
  
• Continued urbanization and growing middle-class consumption in China, combined with Li Ning's strategic push to deepen market penetration in both high-tier and emerging markets, are set to underpin long-term, structural increases in sales volumes and revenue.

Li Ning Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Li Ning's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 10.5% today to 10.2% in 3 years time.
• Analysts expect earnings to reach CN¥3.3 billion (and earnings per share of CN¥1.26) by about August 2028, up from CN¥3.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥5.2 billion in earnings, and the most bearish expecting CN¥2.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, up from 13.3x today. This future PE is greater than the current PE for the HK Luxury industry at 10.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.81%, as per the Simply Wall St company report.

Li Ning Future Earnings Per Share Growth

Risks

• Declining Offline Retail Performance and Store Optimization: Persistent declines in offline customer traffic (down 10–20% year-on-year) and flat overall retail sell-through, combined with ongoing closure of inefficient stores, signal structural risks in Li Ning's traditional distribution model. This trend could limit revenue growth, increase the burden of store-related asset write-downs, and compress net profit margins.
  
• Rising Inventory and Discounting Pressures: Increasing all-channel inventory value (up high single digit year-on-year) relative to modest revenue growth, along with deeper discounts (offline discount rate increased 0.5 pp), suggest potential challenges in matching supply with demand and defending price points. This raises the risk of future markdowns or inventory obsolescence, putting downward pressure on gross margins and overall profitability.
  
• Slowing Domestic Growth and Overreliance on Core Market: Management forecasts flat revenue growth for 2025 and continues to emphasize the Chinese domestic market amidst "uncertain market environment" and cautious consumer sentiment. Without significant international growth, Li Ning remains highly exposed to China-specific macro risks and competition, potentially impacting long-term revenue and earnings diversification.
  
• Intensifying Competition and Margin Compression: The need for higher advertising, promotion, and R&D expenditures to defend or grow market share in a landscape of "intensified competition" could lead to sustained increases in expense ratios (up 0.5 pp in 2024). Ongoing margin pressure from both global peers and local brands, especially in high-profile categories like basketball and running, could diminish net profit margins and earnings growth.
  
• Shifting Retail and Consumer Dynamics: The company's increasing reliance on e-commerce (now 31% of revenue) provides opportunities but also exposes Li Ning to fast-changing platform rules, higher customer acquisition costs, and intensified online competition. Meanwhile, sustained decline in brick-and-mortar footfall and potential demographic headwinds in core markets may limit long-term top-line growth and reduce overall sales efficiency.

Valuation

• The analysts have a consensus price target of HK$18.673 for Li Ning based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$51.12, and the most bearish reporting a price target of just HK$11.99.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥32.0 billion, earnings will come to CN¥3.3 billion, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 8.8%.
• Given the current share price of HK$17.0, the analyst price target of HK$18.67 is 9.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.