GTHT released a research report stating that TOPSPORTS (06110) saw a high single-digit decline in Q3 sales, broadly continuing the H1 trend. The firm expects a significant reduction in store closures for FY26 while maintaining its full-year guidance. NIKE has strengthened cooperation with the company, focusing on clearing aged inventory and reducing promotional efforts. Considering ongoing pressure in short-term retail, GTHT slightly lowered its profit forecast.
The report projects FY2026/27/28 net profits attributable to shareholders at RMB1.25 billion, RMB1.45 billion, and RMB1.72 billion, respectively. Applying a FY2027 PE of 15x and converting at 1 HKD = 0.92 RMB, the target price is set at HK$3.81 per share, with an "Overweight" rating maintained.
Key insights include: - **Q3 Sales Decline in Line with H1 Trend**: FY26Q3 (Sept-Nov 2025) total retail and wholesale sales fell by a high single-digit YoY, similar to Q2. Retail outperformed wholesale, consistent with H1 trends. Offline retail improved slightly, while online sales slowed marginally due to base effects. - **Inventory & Discounts**: Inventory levels dropped YoY by quarter-end, with aging structure improving. Online revenue share rose, deepening retail discounts YoY, though the increase narrowed sequentially. - **Store Closures to Decline**: Gross selling area for directly operated stores fell 1.3% QoQ and 13.4% YoY. While net closures continued in Q3, the pace slowed versus Q2, with FY26 closures expected to drop sharply from FY25. Full-year guidance remains unchanged, targeting flat net profit but improved margins. - **NIKE Partnership**: NIKE’s FY26Q2 (Sept-Nov 2025) results showed a 16% YoY decline in Greater China sales, marking an adjustment phase. NIKE has prioritized the region, with Greater China CEO Angela Dong now reporting directly to global CEO Elliott Hill. Measures include reducing promotions, upgrading core stores, and accelerating aged inventory clearance, explicitly highlighting closer collaboration with TOPSPORTS. - **Emerging Brands**: TOPSPORTS’ exclusive brands, such as Norrøna (pop-up in Shanghai’s Kerry Center in October) and SOAR (Shanghai city-limited series), show growth potential.
**Risks**: Deteriorating retail conditions, heightened competition, and strained brand partnerships.