Zhongtai International: 361 Degrees (1361 HK) Premium Store Expansion Exceeds Expectations

2025 performance in line with expectations

The company announced its 2025 financial results: revenue increased by 10.6% year-over-year to RMB 11.15 billion (RMB, hereinafter), net profit reached RMB 1.31 billion, and overall performance met expectations, mainly driven by strong growth across all product categories and resilient gross margin performance. The company declared a final dividend of HKD 0.113, maintaining a full-year payout ratio of 45%.

Accelerating premium store expansion, optimizing channel structure

The company is committed to providing consumers with technologically advanced and cost-effective professional sports products. In 2025, the main brand’s revenue grew by 9.1% year-over-year, with footwear and apparel revenue increasing by 8.0% and 10.7%, respectively; 361 Degrees Kids' revenue grew by 9.6% year-over-year, with footwear and apparel growing by 28.5% and declining by 7.5%, respectively. As of the end of 2025, 361 Degrees had 5,394 stores domestically, with average store size increasing by 16 square meters year-over-year to 165 square meters. The company's new premium store format accelerated its rollout, with 127 stores opened by the end of 2025, one of which was in Cambodia. An additional 100 premium stores are expected to be added in 2026, with 80% of current premium stores already profitable. The premium stores, focusing on all seasons, age groups, product categories, and scenarios, continue to serve as a revenue growth driver. In 2025, e-commerce revenue reached RMB 3.29 billion, growing by 25.9% year-over-year, with online business accounting for 29.5% of total revenue. The company partnered with Meituan Flash Purchase and Meituan Group Buying, fulfilling consumer demand within the last 3-5 kilometers, making 'immediate retail' the main driver of online sales.

The balance sheet remains solid, with significant improvement in cash flow.

On the balance sheet side, inventory days increased from 107 to 117 days in 2025 due to preparations for strong e-commerce channel sales; accounts receivable remained stable at around 148 days; and to maintain long-term good relationships with suppliers, accounts payable days were reduced to 157 days. Significant improvements in inventory and accounts receivable enhanced working capital turnover, with operating cash flow improving from 56 million to 810 million in 2025. Free cash flow during the period was 440 million. The company had 4.1 billion in cash at year-end, with only 300 million in interest-bearing bank loans.

Seize the potential of outdoor categories and overseas markets.

The Finnish outdoor brand ONEWAY under the company already has seven stores, with revenue growing strongly by 17 times. The company will continue to open stores in economically developed regions to seize the growth potential of the professional outdoor sector. In terms of global layout, there are 1,253 overseas sales points. In 2026, the company will seize the opportunity to sponsor the Japan Asian Games to accelerate its overseas expansion strategy. Overseas markets will become a new driver in the future. Performance met expectations, and we maintain our FY26E earnings forecast and target price of HKD 7.76, with a 'Buy' rating.

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