Pou Sheng (3813.HK): Weak Q1 sales

Pou Sheng reported a 21% YoY decline in 1Q24 net profit to RMB5.4bn on the back of a 7% YoY revenue drop to RMB5.4bn. Profitability also weakened during the quarter with GPM down by 0.4pps YoY to 33.2% whereas OPM was down by 0.6pps YoY to 5.1%. The Mgt attributed the soft sales to 1) weak customer traffic, and 2) high base in 1Q23.

Our views: Pou Sheng’s performance was even weaker than brands they are carrying. Adidas China posted an 8% sales increase in 1Q23 while Nike’s China also saw its sales increased by 5% between Dec 23 and Feb 24. The company’s weak momentum extended into April as its sales dropped by 12.3% to RMB1.62bn. Looking ahead, we expect headwinds to Nike and Adidas would continue in China due to 1) soft consumption sentiment; 2) intensified competition from domestic sports brands. The company is trading at 5.0x FY24 P/E.