CICC has released a research report affirming its outperform rating for TOPSPORTS (06110) with EPS estimates of HKD 0.21 and HKD 0.26 for FY26 and FY27, respectively. The current share price corresponds to a P/E ratio of 15x and 12x for FY26 and FY27. Due to an upward shift in industry valuation, the target price has been increased by 23% to HKD 4.17, representing a P/E ratio of 18x and 15x for FY26 and FY27, indicating a potential upside of 20%. Key insights from CICC include: 1HFY26 results align with expectations. The company reported 1HFY26 results (March to August 2025): revenue decreased 6% YoY to HKD 12.3 billion, and net profit attributable to shareholders fell 10% YoY to HKD 800 million, consistent with expectations. The company declared an interim dividend of HKD 0.13 per share, translating to a payout ratio of approximately 102%. Revenue was impacted by fluctuations in terminal retail, prompting the company to optimize offline channels and expand its online retail footprint, actively developing a comprehensive operational strategy. Revenue for 1-2QFY26 declined by a single-digit and high single-digit percentage, influenced by demand volatility. By brand, revenue for primary brands Nike and Adidas decreased by 5% YoY in 1HFY26, accounting for 88% of total revenue; other brand revenue fell by 12% YoY. By channel, direct sales and wholesale revenue decreased by 3% and 20% YoY, respectively, in 1HFY26. In the first half of the fiscal year, the company concentrated on optimizing retail physical stores, ending the period with 4,688 directly operated stores, a decrease of 332 from the start of the fiscal year, while same-store sales area rose by 6.5% YoY, continuously improving operational efficiency. During this period, the company unveiled the ektos running concept store in Shanghai, showcasing an innovative form of offline vertical retail. Additionally, the company is advancing its 1+N diversified operational model to broaden online sales via physical stores, with overall online retail sales experiencing double-digit growth YoY. Gross margins have remained stable, with strict expense control. The gross margin for 1HFY26 slightly declined by 0.1 ppt YoY to 41%, primarily due to: 1) a stronger promotional environment leading to a higher online business ratio, although the extent of deepening saw a sequential narrowing; 2) an increase in retail contribution; 3) support from brand partners. Through refined management, the overall expense ratio only marginally increased by 0.1 ppt YoY to 33.2%. Net income attributable to shareholders in 1HFY26 saw a YoY decline of 9.8%, with net profit margin decreasing by 0.3 ppt to 6.4% YoY. Effective inventory management ensures healthy cash flow for high dividends; the company effectively managed inventory, with a 4.7% YoY decline in book inventory by the end of August. The operating cash flow net amount in 1HFY25 was HKD 1.35 billion, with a net cash ratio of approximately 1.7, and the company plans a high payout ratio of 102% for the first half of the fiscal year. Development Trends: Management indicated that terminal retail in September and October is expected to align with 2QFY26, focusing on profit in the second half of the year, with guidance for FY26 net profit to remain flat YoY and improving net profit margin. Risk warnings include intensified industry competition, an unfavorable retail environment, and fluctuations in raw material prices.