During 3QFY26 (Sept – Nov 2025), Topsports’ total sales declined by HSD YoY. While we expect this has already been anticipated by the market after Nike’s disappointing earnings, we believe Topsports’ performance further demonstrated the toughness of Chinese sportswear retail, and there are signs that December could be even weaker. As such, Topsports has become less certain to achieve its full year guidance (NP to stay flattish YoY), and we expect the actual turnaround of the Company’s earnings may still depend on Nike. Our recent channel check suggested it is not there yet, and we still expect it could take at least some quarters. Nonetheless, its FY26 dividend yield, which we estimate to be 9%, could provide some share price support, hence maintain HOLD.
Key Factors for Rating
3QFY26 sales declined by HSD: slightly missed. Topsports’ total sales of retail and wholesale operations declined by HSD YoY during Sept-Nov 2025, which extended the weakness of 2Q (-HSD YoY). We believe this has already been anticipated by the market after the earnings release of Nike (NKE US, NR) on 18 Dec 2025, as Nike’s Greater China revenue declined by 17% YoY during the same period. In the meantime, Topsports’ retail discount also steepened YoY during 3Q, as contribution from e-commerce increased, which suggested more pressure on GPM and NPM. Overall, this reflected the performance during this period, which covered Double-11, was tough and competition remained intense.
Less confident in achieving full-year guidance. Mgmt. on the conference call commented that operations in Dec 2025 further deteriorated notably, and hence there could be pressure that full year guidance (NP to stay flattish YoY) could miss. While Topsports’ 2HFY26 is subject to a low base effect as its 2HFY25 was also under great stress, we view that the risk of further weakness could escalate after Nike’s sluggish performance in China and a keener competition anticipated in Jan-Feb 2026 CNY period. Hence, our latest forecast now expects FY26 NP to decline by 5% YoY: an operating deleverage but balanced with more effective cost control, especially on the store front (GFA of stores -13% YoY during 3Q).
Topsports’ turnaround still depends on Nike. Given that Nike & Adidas accounted for 88% of sales in 1HFY26, Nike’s turnaround will be critical to the turnaround of its performance. Our expert call on 8 Dec 2025 aligns with mgmt.’s view that Nike is under the progress of improving, with more visible campaign on performance products to lure customers back, but the issues of inefficient channel management takes time to tackle. Hence, we expect Topsports may still need some quarters to recover, and the evidence of such recovery will be the stabilisation of its sales mix, i.e. online sales will not go up.
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 FY26/27/28 EPS by 6%/5%/7% to further reflect the operating deleverage faced by Topsports as customer traffic of offline stores remains weak.
Our TP is lowered to HK$3.3, based on 14x FY2027E P/E (unchanged) and a HKDCNY rate of 0.92.
We reiterate our HOLD rating. While we expect there could be more disappointments on Topsports’ performance, its FY26 dividend yield of >9% is attractive and rare among China consumer companies. We expect this could provide some support to its share price, but further re-rating catalyst would depend highly on Nike’s improvement.