Li Ning's Disappointing Guidance Reinforces Our Bearish View on Its Stock; Shares Overvalued

Li Ning's share price fell 8% after management issued a soft revenue and profitability outlook for 2023. Although guidance is below Refinitiv consensus estimates, it is in line with our estimates. We have long had a bearish view on the valuation of the stock because we believe the market valuation baked in unsustainable growth and profitability assumptions. We expect positive sentiment around the stock to deflate, as nationalism-driven sales growth fails to materialize over the next few quarters. Despite today's sharp selloff, we still believe Li Ning's valuation is too high. We maintain our fair value estimate of HKD 44—which implies valuation of 21 times forward earnings multiple. Among our China sportswear coverage, our preferred picks are Shenzhen International and Anta Sports, both trading at significant discounts to our fair value estimates.