HSBC Upgrades Li Ning to Buy and Raises PT to HKD24.40

Overview

This is an HSBC rating revision report on Li Ning (2331.HK). The core conclusion is that although earnings outlook for 2026 was reduced due to weaker sales momentum since March, market expectations have become more realistic and key downside pressures have partly normalized; with exclusive sponsorship of the Chinese Olympic team, product lineup refreshes, the Golden Label series, and Dragon store rollout, the brand upcycle is expected to translate into earnings recovery beginning in 2027.

Core views

The report’s core views are: first, 2026 earnings were reset, with HSBC cutting the 2026 net profit forecast by about 8.8% to RMB2,816m and expecting year-on-year down 4.1%; second, pre-emptive brand spending weighs on 2026 margins but helps build the base for growth from 2027 onward; third, core Li Ning revenue growth and margins are expected to improve in 2027, with net profit projected to rise about 21% year-over-year; fourth, the current 1-year forward P/E of about 14.2x is below the average in the brand downcycle of 2022-2025, so if brand momentum improves, valuation re-rating is possible; fifth, the target price was raised to HKD24.40 and the rating was upgraded from Hold to Buy.

Analysis framework

The report uses a combination of earnings revisions, consensus comparison, 1-year forward P/E valuation references, DCF valuation, and scenario analysis. Short-term views are based on sales trend since March, retail discounting, and 2026 margin pressure; mid-term views are based on brand sponsorship spending, product refreshes, store image upgrades, stronger brand association ahead of the 2028 Olympics, and upward revisions to 2027-2028 earnings forecasts.

Methodology notes

• Valuation methodsDCF

  Target price is based on a DCF model, with WACC at 10.9% and terminal growth at 0.0%.

  HSBC kept WACC and terminal growth assumptions unchanged, with the target price upgrade mainly coming from higher 2027 and beyond earnings forecasts.

• Valuation methodsforward_pe

  Uses 1-year forward P/E to assess valuation downside and re-rating potential.

  The report notes Li Ning’s current valuation is about 14.2x 1-year forward P/E, below the 2022-2025 average brand downcycle level of 18.2x, so downside room is limited if the brand cycle stabilizes; if brand momentum rebounds, revaluation may occur.

• scenario_analysisbull_base_bear

  Evaluates equity upside under bull, base, and bear scenarios.

  The bull scenario assumes P/E re-rates to the post-2022 average 1-year forward P/E of about 18.0x and EPS beats by 5%, corresponding to HKD28.7 and 48% upside; the base scenario is the DCF PT of HKD24.4; the bear scenario holds valuation around current about 13.5x and EPS 5% below expectations, implying about 0% upside.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Li Ning / 2331.HK

  Core coverage name; the report upgrades the rating from Hold to Buy.

  Strengths

  Brand upgrade cycle, Chinese Olympic team sponsorship, Golden Label series, Dragon stores, running product technology upgrade, expected earnings recovery from 2027, and valuation re-rating room.

  Weaknesses

  Sales momentum weakened since March, 2026 earnings forecasts were cut, and upfront brand spending causes delayed margin recovery.

  Comparison

  Current 1-year forward PE is about 14.2x, below the 2022-2025 average brand down-cycle level of 18.2x; HSBC’s 2026 net profit forecast is about 9% below consensus, while the 2027 forecast is only about 2% below consensus.

  Risks

  If the market remains highly promotional, margins may recover less than expected; if consumption demand and new product acceptance are weaker than expected, the brand upcycle may be delayed.

Key data

• RatingBuy, previously HoldHSBC upgraded Li Ning from Hold to Buy.
• Target priceHKD24.40Previous target price was HKD22.90, up 6.6%.
• Current priceHKD19.44Market data as of close on 2026-05-08.
• Implied upside+25.5%Upside potential of target price versus current price.
• 2026e net profitRMB2,816mHSBC cut 2026e net profit by 8.8%, expecting year-over-year decline of 4.1%.
• 2027e net profitRMB3,396mHSBC raised 2027e net profit by 3.1%, with expected year-over-year growth of about 20.6%-21%.
• 2026e revenue growth5.4%The report body also mentions revenue growth around 5%; the table shows 5.4%.
• 2027e revenue growth7.2%Up from previous forecast of 4.2%, reflecting brand momentum recovery.
• 2026e net margin9.0%Below 2025’s 9.9%, mainly due to upfront brand spending and sales pressure.
• 2027e net margin10.2%Supported by operating leverage recovery.
• Current 1-year forward PEabout 14.2xBelow the 2022-2025 average brand down-cycle level of 18.2x.
• DCF assumptionsWACC 10.9%, terminal growth rate 0.0%Core DCF assumptions remain unchanged.

Impact & implications

For investors, the implication is that the short-term earnings downgrade and sales slowdown are already partially reflected in the stock price and expectations, making further downside risk relatively manageable; if Li Ning’s brand spending, Olympic sponsorship, and product upgrades translate into faster sales growth and margin recovery, earnings recovery from 2027 and valuation re-rating could jointly support the stock’s performance. The report mainly frames this period as a positioning window before the brand upcycle takes off.

Risks

• Market remains highly promotional, causing gross margin or net margin to be below expectations.
• If sales momentum weakness since March continues, 2026 revenue and profits could come under further pressure.
• Upfront brand spending does not convert as expected, potentially delaying earnings recovery in 2027.
• Consumer acceptance of the Golden Label line, running line, and new technology products is below expectations.
• Intensified competition and weak consumption demand may reduce the growth leverage from brand upgrading.

What to watch

• Whether 2026 second-half sales momentum stabilizes, especially core Li Ning brand revenue growth.
• Consumer feedback and sales conversion of the Golden Label series, Dragon stores, and new running products.
• Actual contribution of brand marketing spend to 2027 revenue growth and net margin recovery.
• Whether 2027 net profit comes close to HSBC’s expected about RMB3,396m with about 21% year-on-year growth.
• Whether brand association strengthens ahead of the 2028 Olympics, creating further upside for upward revisions to 2028 forecasts.
• Retail discounting, promotional intensity, and gross margin changes.