Morgan Stanley: Li Ning (2331.HK): Ahead of Upgrade Cycle, Expecting Mid-Single-Digit Revenue Growth in 2026
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Morgan Stanley asserts that Li Ning is on the cusp of an upgrade cycle, forecasting mid-single-digit revenue growth for 2026. This recovery is driven by mid-to-high single-digit growth in running and training categories, a significant narrowing of basketball declines, and over 20% growth in badminton. Management expects Q1 2026 retail sales growth to reach mid-single digits or higher, aligning with peer performance and marking a stark improvement over 2024-2025.
Gross margin is projected to recover from 48.7% in 2025 to 49.0% in 2026 and 49.5% in 2027. This expansion is underpinned by improving industry pricing power anticipated from Q2 2026 onward, supported by tighter inventory management. SG&A ratio degradation should stabilize as operational control improves, while lower non-cash expenses will further support net margins.
Morgan Stanley raised its 2025-2027 earnings estimates and upgraded the target price by 4% to HK$26.00, based on rolling a 17x target P/E to 2026. The bank maintains an Overweight rating. Reported net profit is expected to grow 13% to RMB 3.142 billion, beating market consensus by 8%. A key downside risk involves crude oil prices exceeding US$100/bbl, which could hit 2026 gross margins by 0.5 percentage points if costs remain unpassable.