Cathay Pacific Haitong: Maintaining Taobo's (06110) “Gain” Rating Target Price of HK$3.81

The Zhitong Finance App learned that Cathay Pacific Haitong released a research report saying that Taobo (06110) sales volume fell higher in Q3, basically continuing the H1 trend. It is expected that store closures will be drastically reduced in FY26, keeping the guidelines unchanged throughout the year. NIKE and the company have strengthened cooperation to recycle old inventory and reduce promotional efforts. Considering that short-term terminal retail is still under pressure, the bank slightly lowered the company's profit forecast. The bank expects FY2026/27/28 net profit to be $12.5/1.72 billion, respectively. FY2027PE15X will be awarded to FY2027PE15X, which corresponds to a target price of HK$3.81 per share based on HKD1 = RMB0.92, maintaining the “increase in holdings” rating.

Cathay Pacific Haitong's main views are as follows:

Sales volume fell higher in Q3, and orders basically continued the H1 trend

FY26Q3 (25.9-11) Total retail and wholesale sales volume of Taobo fell by a high number of units year on year. The decline remained flat from month to month in Q2. The number of units declined during the same period last year. Retail performance was better than wholesale, and the trend was basically in line with the first half of the fiscal year. Affected by last year's base figures, offline retail improved slightly and online retail slowed slightly. Due to the increase in the share of online channel revenue, retail discounts have deepened year over year, but the increase has narrowed month-on-month, mainly due to the narrowing of online and offline differentiation. Inventory declined year-on-year at the end of the quarter, and the storage structure improved month-on-month.

Store closures are expected to be drastically reduced in FY26, maintaining the same guidance throughout the year

At the end of the quarter, the gross sales area of the company's directly-managed stores decreased by 1.3% month-on-month and 13.4% year-on-year. Although there were still net store closures in Q3, the magnitude was slower than in Q2, and the number of store closures in FY26 is expected to drop significantly compared to FY25. The company maintained its FY26 guidelines: net profit is expected to remain flat year over year and net interest rate to improve year over year.

NIKE strengthens cooperation with the company to recycle old inventory and reduce promotional efforts

The company's main brand partner, NIKE, previously announced FY26Q2 (25.9-11) results. Revenue in Greater China declined by 16%. It is expected that FY26 will all be in the adjustment phase. Currently, the recovery progress of Greater China is lagging behind globally, and it has become one of NIKE's work priorities. In terms of internal structure, NIKE Greater China CEO Dong Wei (Angela) has reported directly to NIKE CEO Elliott Hill. Regarding the Greater China region, management is aware that frequent price cuts damage brand positioning, and NIKE is becoming a sports and leisure brand that relies on price competition.

The main measures include: 1) promoting pilot renewal of core stores; 2) reducing promotion efforts; 3) speeding up the clean-up of old partner inventory, and clearly mentioning strengthening cooperation with dealers such as Taobo. Furthermore, among the emerging niche brands exclusively represented by Taobo: Norrøna launched a pop-up store in Kerry City, Pudong, Shanghai in October. SOAR has recently launched a limited series in Shanghai.

Risk warning: The retail environment has deteriorated, industry competition has intensified, and brand partnerships have deteriorated.