JPMorgan on Li Ning: Recovery Theme Faces Challenges; Rating Downgraded to Neutral
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JPMorgan downgrades Li Ning (2331.HK) from Overweight to Neutral and cuts the December 2026 target price 48% from HK$23 to HK$12, applying 11.5x 2027E P/E—roughly in line with the sector's ~11x average and well below the historical 23x. The core issue is a delayed earnings recovery: third-quarter retail sales show no clear improvement versus the weak second quarter, the second-half environment skews promotional, further cost savings are limited, and brand investments—sports events, national-team signings and the Curry partnership—are lifting advertising intensity. Management lowered FY26 guidance to low-single-digit revenue growth (from high-single) and a mid-to-high-single-digit net margin (from high-single). JPMorgan cuts 2026-28 earnings by 23-28%, leaving forecasts 14-22% below Bloomberg consensus, with 2026/27 adjusted EPS of RMB0.83/0.88. It models 2H26 net profit down 72% year-on-year to the lowest absolute level since 2017 on a 2.3% net margin, with sales up just 3%. A mild 2027 recovery follows: revenue +3%, net profit roughly +5%, gross margin slipping 0.1ppt on raw-material inflation. At HK$13.63, the stock trades at 13.3x 2027E P/E, implying 12% downside to target, but the earnings reset and a strong balance sheet cap the downside, making Neutral preferable to Underweight.