Topsports’ 1HFY26 revenue/NP were down by 5.8%/9.7% YoY respectively, as it continued to be weighed by the weakness of offline retail. However, we see Topsports has been managing cost and the negative operating leverage tightly, and the company reiterated its full- year guidance of achieving flattish NP and improving NPM. We believe with a target 100% dividend payout, such results could impress some investors. Still, given the reliance on the top two brands (Nike and Adidas), and also the ongoing shift of retail traffic towards e- commerce, we expect Topsports’ growth outlook would still be under stress in the next 12 months. Despite the attractive dividend yield, we maintain HOLD.
　　Key Factors for Rating
　　1HFY26 results mostly in line with expectations. Topsports’ revenue and NP were down by 5.8%/9.7% YoY to RMB12,299m and RMB788m respectively, as total sales were down by MSD/HSD YoY in 1Q and 2Q. Despite the structural weakness, including higher retail discounts offered and channel shift to online, Topsports still managed to maintain GPM intact at 41.0% (1HFY25: 41.1%), thanks to the incentives & support from brand partners. Topsports also had a net store closure of 332 during 1HFY26, so total store count was reduced to 4,688 (-19% YoY), but it also reduced its headcount by 16% YoY while rental expenses were down by 12% YoY. Together, the negative operating leverage was contained and NP just slipped by 0.3ppt YoY to 6.4%.
　　Reiterating full year target could be comforting. Despite the ongoing pressure of offline retail traffic and customers shifting towards online, Topsports remained committed to expand through omni-channel, such as store-based livestreaming, which may mitigate some impact of weaker offline sales.
　　Combined with the cost-saving efforts in 1HFY26, Topsports reiterated its full year guidance of flattish NP and improving NPM. This would imply a c.23% YoY growth in 2HFY26 NP by our estimates. Although that was partly attributed to a lower base in FY25, we also expect the impact of those initiatives, and tempered net closure of stores sequentially, could also help in 2HFY26.
　　Recovery still depends on the two big brand partners. Although Topsports have certain breakthroughs in business of its new brands, revenues from Nike & Adidas still matter as contribution increased by 0.9ppt YoY to 87.9%. As per Nike’s recent updates in Sept 2025, it expected a longer time for a turnaround in Greater China market, which could cast uncertainty on Topsports’ sales. While Nike also ramped up its product offerings and will collaborate with Topsports to set up Nike ACG standalone stores in China, we expect the keen competition in 2H25 & 2026, especially in running & outdoor categories, may affect the timing of turnaround again, in our view.
　　Key Risks for Rating
　　Downside risks: rising competition from other distributors; cannibalisation from brands’ DTC efforts in China; deteriorated store productivity; significant share placement by major shareholders, and lower margins due to channel shift.
　　Upside risks: strong performance of non-Nike brands, strong sales recovery of Nike products, less intense competition from peers and better-than-expected cost control.
　　Valuation
　　We lower our FY26/27/28E EPS by 2%/5%/1% to reflect the challengers faced by offline stores as we assume a slower recovery for both the industry and Topsports.
　　We reiterate HOLD rating. While the dividend yield of >9% is indeed attractive and rare among China consumer companies, we expect this higher dividend return reasonably priced in. We expect share price could also be under pressure after ex-dividend date (5 Dec 2025) if its fundamentals remained challenged during 2025’s e-commerce festivals. After all, we see the potential to re-rate and resume decent earnings growth in the long term would depend on its execution of brand diversification, and also Nike’s turnaround.
　　Our TP is raised to HK$3.5, based on 14x FY2027E P/E (previous: 14x FY2026E P/E) and a HKDCNY rate of 0.92 (previous: 0.93).