CITIC Securities: Q4 sales in line with expectations, super product channels continue to expand

In Q4 of 2025, the company’s main brand offline/kids offline/e-commerce channel revenue streams increased year-over-year by +10%/+10%/high double digits, meeting market expectations. This indirectly reflects the continuous benefit of the company's outstanding product cost-performance attributes in the current consumer environment. We expect that the company’s revenue and profits in 2025 will maintain double-digit growth momentum, gradually driving continued improvement in operating cash flow. In the long term, the exploration of the company's outdoor brand One Way business, as well as its overseas offline wholesale and cross-border e-commerce businesses, is expected to provide new growth drivers for the company. The company is likely to promote valuation reshaping through sustained performance delivery and dividend increases. Maintain 'Buy' rating.

Double-digit growth continues into Q4 2025.The company announced operational data for Q4 2025. In Q4 2025, retail sales of 361° main brand offline stores grew +10% year-over-year (implying a CAGR of approximately +10% from Q4 2023 to Q4 2025, same below); retail sales of 361° kids brand offline stores increased +10% year-over-year (2-year CAGR approximately +10%); 361° e-commerce platform retail sales achieved high double-digit growth year-over-year (2-year CAGR approximately +25%). According to the company's announcement, we estimate that the full-channel revenue stream in Q4 increased by approximately low double digits year-over-year (corresponding to a 2-year CAGR of about low double digits).

Recent operations: Inventory & discounts remain robust.According to the company's Q4 2025 operational data conference call, 1) Inventory remains stable: The channel inventory-to-sales ratio for Q4 2025 is approximately 4.5~5x, maintaining a healthy level (Q1 2024~Q3 2025 have all been at 4.5~5x). 2) Discounts remain robust: Retail discounts for Q4 2025 are around 70~71% off, remaining stable quarter-over-quarter (retail discounts for Q1 2024/Q2 2024/Q3 2024/Q4 2024/Q1 2025/Q2 2025/Q3 2025 were approximately 70~71% off/71% off/70~73% off/around 70% off/around 70% off/around 70% off). 3) Super stores continue to open; distributors opened the first overseas super store. The company currently operates 126 super stores nationwide (10/39/44/33 new stores opened in Q1/Q2/Q3/Q4 2025, respectively), exceeding the company’s previous expectations for domestic super store openings. Additionally, the first overseas super store (Cambodia) successfully launched in Q4 2025.

Outlook: Growth momentum is expected to continue.According to the company's Q4 2025 earnings call, in the short term, the company’s Spring/Summer 2026 order bookings show steady growth, meeting group expectations, with volume driving the growth. In the long term, on one hand, the company’s domestic main brand is expected to sustain its brand growth momentum; on the other hand, the exploration of the outdoor brand One Way’s business and the company’s overseas wholesale and cross-border e-commerce businesses are expected to provide new growth drivers in the future.

Risk Factors:Slower-than-expected consumer recovery; fierce competition driving up expense ratios; weaker-than-expected product innovation; slower-than-expected store expansion; lower-than-expected demand for sports and children’s products; global macroeconomic pressures; risks from the overseas macroeconomic environment affecting the company's international business.

Earnings forecast, valuation, and rating:In Q4 2025, the company’s main brand offline/kids offline/e-commerce channel sales increased by 10%/10%/high double digits year-over-year, meeting market expectations, indirectly reflecting the company’s strong cost-performance advantage continuing to benefit from the current consumption environment. We maintain our EPS forecast for 2025-27 at RMB 0.61/0.67/0.74 and our net profit forecast for 2025-27 at RMB 1.263/1.390/1.527 billion.

Referencing the valuation multiples of domestic sportswear companies for 2026 (Li Ning/Anta Sports/Xtep International trading at 17x/14x/9x PE based on CITIC Securities Research forecasts) and the company’s historical average PE over the past decade (10x), and considering the company’s rising growth momentum, we assign a 10x PE multiple for 2026, corresponding to a target price of HKD 7.5 (exchange rate: 1 RMB = 1.1 HKD), with a target market cap of HKD 15.5 billion, maintaining a 'Buy' rating.