(02331-hk) recently announced the results of the first half of 2020, which indicated that the performance increased by an amazing profit margin and exceeded the expectation. In the first half of 2020, the sales volume increased dramatically. Despite the impact of health events, the first half of 2020 saw a year-on-year decline of only 1.2%. This feat was achieved through active wholesale business (i.e. sales), with Li Ning’s wholesale revenue increasing by 2.3% year-on-year to 3.109 billion yuan, accounting for 50.3% of the business. < / P > < p > the e-commerce business (up 23% year-on-year) was originally expected to be strong, accounting for 27% of sales and contributing to the strong growth. The key weakness is the sales of physical channels: in the first half of 2020, Li Ning’s brand direct retail business actually decreased (year-on-year – 24%) to RMB 1.324 billion, accounting for 21.6% of the total revenue. Management stressed that part of the reason for the strong sales performance could be attributed to the increase in the marked retail prices that began in the second half of last year. In the first half of 2020, the gross profit rate only dropped by 0.2 percentage points. It seems impossible to achieve during the covid-19 pandemic, but the gross profit margin remained flat, thanks to a) a “low single digit” initial increase in wholesale business; and b) a “low double digit” increase in recommended retail prices, both contributing a year-on-year buffer of 1.4 percentage points. All other attributable factors weighed on gross margin, including direct retail gross margin (- 0.6 percentage point), channel revenue mix (- 0.6 percentage point) and inventory reserve (- 0.44 percentage point). According to the report, Li Ning’s retail situation is still full of challenges. In 2020, Li Ning’s discount rate in the first quarter, the second quarter and the third quarter has deteriorated by 5 percentage points / 6.5 percentage points / 6 percentage points year on year. When asked about the outlook and competitiveness, the company believes that industry discounts may only begin to normalize in the fourth quarter. In terms of channel inventory, it deteriorated to 5.4 months in the first half of 2020 (the second half of 2019: 4.2 months), while the percentage of old products (6 months and above) increased from 24% to 29%. < p > < p > according to the guidance of Li Ning’s platform in the annual performance, its platform operation cost has saved a lot of money. The proportion of staff cost in revenue decreased by 1.5 percentage points to 10.1% year-on-year, while R & D (0.1% year-on-year) and a & P (+ 0.1 percentage point) remained relatively stable. This is the key source of Li Ning’s net interest rate growth. < / P > < p > the company guides the revenue in 2020 to be “flat to the middle digit on a year-on-year basis”. The guidance gross margin will see an improvement in discount reduction, as well as the continued positive impact of increased inventory, but since the old and new product portfolio has been optimized year on year in the second half of the year, there is no more contribution from the new portfolio. Finally, conservatively guide the operating profit margin of at least 10.5%. If brand equity remains strong in 2021 and beyond, management will be able to further increase the recommended retail price. In addition, the CEO mentioned that he hoped the cost structure would be further improved year by year. < / P > < p > given that management has a reliable track record in providing guidance, the bank will make significant changes to the estimates to reflect their figures. Now, the bank is confident that its previous cost cutting, average selling price and discount cuts have not only been achieved, but also that Li Ning’s growing brand equity will make these factors the driving force for long-term growth. < / P > < p > the bank raised its target price from HK $25 to HK $35 and upgraded its rating from “hold” to “buy”. After largely consolidating management’s belief in cost reduction, rebate reduction and net interest rate increase in the next few years, the bank raised its net profit forecast for 2020 / 2021 / 2022 by 47% / 10% / 0%. Now, Li Ning is ranked as the preferred stock of sportswear, not only because its relatively low base (relative to Anta) has improved its operation, but also because of its rising brand equity in the domestic market and its income base mainly in China (99%), which is the fastest recovering consumer market after the health event. Therefore, from the perspective of fundamentals and momentum, Li Ning is the most attractive stock in the field of sportswear.