China Demographics And Global Rivalry Will Crimp Profits

Key Takeaways

• Demographic changes and growing competition threaten long-term revenue growth and market share, with intensified pricing battles and shrinking domestic demand.
  
• Expanding ESG requirements, shifting consumer channels, and geopolitical risks will drive up costs, compress margins, and challenge international expansion.
  
• Product innovation, digital expansion, and strong branding position Li Ning for sustained growth and margin improvement amid rising demand for athletic wear and favorable industry trends.

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.

• Demographic shifts in China, such as an aging population and slower growth in the youth demographic, are likely to shrink the addressable market for athleticwear, which will put sustained pressure on Li Ning's long-term domestic revenue growth and limit future earnings potential.
  
• Continued escalation of environmental, social, and governance requirements will require significant incremental investments in compliance and sustainable supply chain practices, leading to structurally higher operating costs, and likely resulting in persistent net margin compression in the coming years.
  
• Rising geopolitical tensions and concerns about China's global image could lead to increasing restrictions or consumer pushback in international markets, undermining Li Ning's ability to expand abroad and capping total long-term revenue opportunity.
  
• Intensified competition from both global sportswear giants and aggressive local rivals like Anta and Xtep is expected to escalate price wars and margin pressure, eroding Li Ning's market share and threatening both revenue growth and net margin expansion.
  
• The rapid shift toward digital-native and direct-to-consumer channels, along with the fast-changing fashionization of sportswear, increases Li Ning's risk of higher inventory obsolescence, customer acquisition costs, and operating expenses, all of which are set to reduce profitability over time.

Li Ning Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Li Ning compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Li Ning's revenue will grow by 2.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 10.5% today to 8.7% in 3 years time.
• The bearish analysts expect earnings to reach CN¥2.6 billion (and earnings per share of CN¥1.02) by about July 2028, down from CN¥3.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.7x on those 2028 earnings, up from 13.3x today. This future PE is greater than the current PE for the HK Luxury industry at 9.9x.
• 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 8.68%, as per the Simply Wall St company report.

Li Ning Future Earnings Per Share Growth

Risks

• Li Ning's ongoing product innovation, technological advancement in core categories (such as running shoes with the Super BOOM midsole and high-performance basketball footwear), and investment in R&D are supporting the company's ability to command higher selling prices and enhance gross profit margins, which could drive future earnings growth and contradict share price weakness.
  
• The rapid growth of e-commerce-now comprising 31 percent of revenues with a year-on-year increase of 10 to 20 percent-alongside improved digital traffic and conversion rates, suggests deepening direct-to-consumer engagement, which enhances operating leverage and supports revenue resilience in the long term.
  
• Li Ning's strategic focus on expanding its presence in both high-tier and emerging markets, optimizing store footprint, and continuously upgrading physical retail experience (ninth-generation stores) demonstrates the potential to capture new market share and facilitates consistent revenue growth as consumer demand recovers or rises.
  
• Strengthening of the Li Ning brand through high-profile partnerships such as becoming the official sportswear partner of the Chinese Olympic Committee and national teams through 2028, as well as through innovative marketing, co-branding, and sponsorships, supports brand premiumization and increases customer loyalty, potentially resulting in sustainable revenue and net profit margin improvement over time.
  
• Favorable secular trends-such as increasing sports participation in China, rising health and wellness consciousness, and continued government support for athletic initiatives-expand the overall addressable market for sporting goods and activewear, positioning Li Ning to benefit from lasting growth in industry demand and strengthening its long-term earnings prospects.

Valuation

• The assumed bearish price target for Li Ning is HK$12.01, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Li Ning's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$51.21, and the most bearish reporting a price target of just HK$12.01.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CN¥30.4 billion, earnings will come to CN¥2.6 billion, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 8.7%.
• Given the current share price of HK$17.04, the bearish analyst price target of HK$12.01 is 41.9% lower.
• 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.