J.P. Morgan: Peacebird Fashion (603877) 2Q as Checkpoint, Maintain Neutral
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J.P. Morgan maintains a Neutral rating on Peacebird Fashion (603877.SS) with a December 2026 price target of RMB 14.00. First-quarter 2026 net profit rose 10% year-over-year, a notable improvement after 2025 saw revenue and net profit decline by 7% and 33%, respectively. The quarterly recovery was supported by 8% growth in direct retail sales, online gross margin expansion from disciplined discounting, and a 0.9 percentage point reduction in the management expense ratio.
However, franchise sales remained weak, falling 15% year-over-year. Store network optimization continued, with 62 net closures in the first quarter following 375 net closures throughout 2025. J.P. Morgan views the second quarter as a critical checkpoint to assess whether recent improvements in retail momentum can be sustained against a still-challenging consumer backdrop.
Analysts lowered 2026 and 2027 adjusted EPS forecasts by 15.7% and 18.3%, respectively, to account for ongoing store network rationalization and franchise weakness. The DCF-based target of RMB 14.00 implies 22 times 12-month forward price-to-earnings, applying a WACC reduced from 11.9% to 10.6%. J.P. Morgan remains cautious on Peacebird's near-term outlook due to uncertain consumer demand and execution risk around its reform initiatives. A more constructive stance could emerge if product upgrades, omnichannel optimization, and digital transformation deliver tangible results, though management acknowledges these efforts will require time to validate.