Cathay Pacific Haitong: Maintaining Taobo's (06110) “Gain” Rating Target Price of HK$1.16

The Zhitong Finance App learned that Cathay Pacific Haitong released a research report stating that the net profit for FY2027/28/29 Taobo (06110) is expected to be 9.5/7.8/80 billion yuan respectively. Considering that the impact of Nike's termination of online distribution rights will be fully revealed in FY2028, FY2028 PE 8X will be given, based on the conversion of HK$1 = 0.86 yuan, corresponding to a target price of HK$1.16 per share, maintaining the “increase in holdings” rating.

Cathay Pacific Haitong's main views are as follows:

Revenue for the first half of the fiscal year was under pressure, and the Q1/Q2 flow trend was consistent

FY27H1 (26.3-26.8) Company revenue was 10.91 billion yuan, down 11.3% year-on-year. By channel, direct management (-8.8%) performed better than franchise (-27.5%). By brand, other brands (-8.5%) performed better than the main brands (-11.6%). The company's turnover in Q2 fell by 10-20% year-on-year, in line with Q1's performance. At the end of the period, there were 3,872 direct offline stores, down 17.4% year on year. Among them, total sales area decreased by 12.9% year on year, and single store area increased by 5.5% year on year. In the first half of the fiscal year, 488 stores were closed. The number of store closures increased by about 300 stores each compared to FY26H1/H2.

Deepening discounts are dragging down gross profit, and cost control is strict

FY27H1 gross profit margin was 40.1%, down 0.9 pct year on year, mainly due to deepening discounts. The company strictly controlled expenses. The sales/management expense ratio remained flat year on year during the period. Looking at split sales expenses, the employee expense ratio remained stable year on year, and the rent rate decreased by 0.9 pct year on year, offset by a 0.9 pct increase in other expenses. The government subsidy during the period was 80 million yuan, an increase of 105.4% over the previous year. In the end, net profit to mother was 660 million yuan, a year-on-year decrease of 16.0%, and a year-on-year net profit margin of 6.1%, a year-on-year decrease of 0.3 pct.

Abundant cash flow and high dividend payout rate

The company's operating cash flow during the period was 1.84 billion yuan, up 36.1% year on year, 2.8 times the net profit for the same period, and the cash flow was abundant. Inventory at the end of the period was 4.92 billion yuan, a year-on-year decrease of 16%. An interim dividend of RMB 0.11 per share was declared, with a dividend ratio of 103% and an interim dividend of 13%.

Steady management to respond to changes and cultivate professional brands in segmented racetracks

On January 1, 2027, Taobo will completely stop selling Nike products on online platforms. The bank expects that the company is currently maintaining communication and cooperating with Nike to complete online inventory clean-up, and will continue to maintain close cooperation on offline sales in the future. The company increased the layout of subdivided tracks for running, outdoor, etc., and solidly promoted Ciele, Norda, and Norr? Exclusive partner brands such as Na and Soar operate across the full chain. During the running collection store ektos, the Anayatuo store in Qinhuangdao signed a new exclusive operating right for the American outdoor brand Sierra Designs in the Chinese market. The first store is expected to open in November at the Shanghai West Coast Dream Center.

Risk warning: The retail environment deteriorated, industry competition intensified, and cooperative brands withdrew their distribution rights, causing short-term negative effects.