1H25 results were a small miss, in our view, and despite the confirmation of FY25E guidance, we have turned more concerned about its store opening plan, offline sales growth and inventory days. However, because of its relatively low valuation vs peers, plus its better-than-peers’ retail sales growth in 1H25, we maintain BUY and raise TP to HK$ 7.09, based on 11x FY25E P/E.
　　On one hand, we believe the FY25E guidance is achievable, but on the other hand, we do see a few risks or concerns as well. We are still
　　confident on the FY25E guidance (esp. the 10% to 15% sales growth in 2H25E), because: 1) 361 Degrees’ products are still priced lower vs peers, hence they could still benefit from the consumption trade-down demand, 2) its basketball segment growth is still fairly strong (thanks to successful sponsorships with Nikola Jokic and his first China tour), 3) star products are still selling well (e.g. the Furious Future 2, Flying Flame 4 running shoes, Big3 5.0, DVD3 and Joker1 basketball shoes), 4) opening of more Super Premium stores (still targeting 100 by the end of FY25E), 5) relatively faster e-commerce sales growth (even though we are factoring in a possible slowdown in 2H25E), and 6) the re-opening of ONE WAY brand stores (about 5 new distributor stores will be opened before Oct 2025).
　　However, we do need to highlight a few concerns, namely: 1) risks about the store-opening plans (while more Super Premium stores could be opened, the associated distributors are likely to close some other regular stores at the same time, and this might drag down future sales or trade fair order growth), esp. when the number of 361 Degrees adult stores was still falling HoH in 1H25. 2) The enduring pressure on offline sales per store, partly due to sluggish foot traffic and rise in competition. If the SSSG remains low or turns negative, this might result in weaker sentiment for future trade order growth. 3) Climb in inventory days. Inventory days already increased to 109 days in 1H25, which is quite close to the level back in FY20. If the situation persists, retail discounts may be widened or more provisions may be needed in the future.
　　Maintain BUY and raise TP slightly to HK$ 7.09, based on 11x FY25E
　　P/E. We have revised down FY25E/ 26E/ 27E net profit forecasts by 3%/ 5%/ 6%, in order to factor in a slower offline sales growth, slower store expansion and weaker opex control. Our TP is based on 11x FY25E P/E (up from 9x, due to its better-than-peers’ growth in FY25E and a higher dividend payout ratio).The stock is trading at 9x FY25E P/E with a 6% FY25E yield, still trading below the industry average of 12x FY25E (or Xtep’s 10x, Li Ning’s 16x and Anta’s 17x).