China sportswear:4Q17channel observations,the winter acceleration

The strength seen in off-line sportswear retail is likely to be driven by improvede-commerce resilience and consumer sentiment. 3Q18 orderbook growth alsoappears solid with Li Ning (LN) testing a more flexible order mechanism andNike seeing strong improvement in product designs. On LN, we believe it couldaccelerate investment in 2018 to address some “imbalances”. We thus seepressure on its 2018 net margin guidance. We maintain preference on Antaover LN and Pou Sheng (PS).

    We are encouraged by LN’s retail performance in 4Q17 but believe two issuesrequire monitoring: (1) Sellthrough is more concentrated towards apparel, alsoevidenced by sellout; we witnessed extremely strong sellout for LN’s apparel in4Q17 (down jackets started to report shortage) but footwear sellout wasrelatively lagging. (2) Performance gap between old and new stores, mostevidenced by the gap between SSSg and sellthrough growth, with worseneddeterioration seen in some older street-side stores.

    As such, we expect LN to accelerate channel investment. We see pressure onLN’s 2018 net margin guidance and cut DBe 2018/19 earnings by 14%/7%, butwe remain more optimistic than consensus in 2019 (Figures 4,5, 6).