Li Ning Investment Quality Review (02331.HK)

Data timestamp: 2026-07-07 14:08 UTC
Quality score: 75.5/100 Valuation position: current price/base fair value (FV) 0.70 Final signal: BUY

Core Conclusion

Li Ning is a borderline BUY at 14.82 HKD. The stock trades at roughly 0.70x base FV of 21.19 HKD, while conservative FV of 16.73 HKD remains above the current price. This clears the ordinary BUY boundary, but it is not a 2x signal because current price/base FV is nowhere near 0.50.

• Quality: the brand, channel footprint, and cash generation are still attractive. FCF was positive in each year from 2021 to 2025, and 2025 FCF/net income was 1.22. The deductions are also material: ROE and ROIC have fallen, discount pressure remains visible, the business is concentrated in one main market, and growth has slowed.
• Price: market capitalization is about 38.3bn HKD. Conservative/base/upside per-share FV are 16.73/21.19/24.42 HKD. The investment case depends on stable FCF and balance-sheet protection rather than a high-growth rerating.
• Discipline: the report should be treated as a boundary BUY, not a high-conviction compounder entry. Any weakening in FCF, inventory turnover, or margin recovery can remove the signal.

Business Breakdown

Business/product/region	2021 revenue	2022 revenue	2023 revenue	2024 revenue	2025 revenue	Five-year change	2025 margin/profit disclosure	Read-through
Footwear	CNY 9.506bn	CNY 13.479bn	CNY 13.389bn	CNY 14.300bn	CNY 14.651bn	11.4% CAGR	Product-level profit not disclosed; group gross margin was 49.0%	The largest growth source; professional running, basketball, and footwear technology remain the core brand-premium driver.
Apparel	CNY 11.824bn	CNY 10.709bn	CNY 12.411bn	CNY 12.050bn	CNY 12.327bn	1.0% CAGR	Product-level profit not disclosed; group gross margin was 49.0%	Large but weak growth; more exposed to discounting and channel mix pressure.
Equipment and accessories	CNY 1.242bn	CNY 1.616bn	CNY 1.799bn	CNY 2.325bn	CNY 2.621bn	20.5% CAGR	Product-level profit not disclosed; group gross margin was 49.0%	Fast growth from a small base; limited contribution to total valuation.

• Value driver: professional footwear growth provides the main valuation elasticity. Apparel’s low growth and discount exposure prevent the memo from assigning a high multiple.
• Management outlook: management continues to emphasize a single-brand, multi-category, multi-channel strategy, better efficiency in higher-tier markets, penetration of emerging markets, online/offline coordination, and faster inventory turnover. That supports a recovery case, but it is not yet evidence for renewed high growth.

Business Quality Score

Dimension	Score	Evidence	Deduction
Business model quality	8/10	Own brand, national channel network, franchise/DTC/e-commerce mix, and 2025 revenue near CNY 29.6bn.	Sportswear is still exposed to promotions, inventory cycles, and channel cycles.
Moat	15/20	The Li Ning brand, professional sports resources, footwear technology, and channel coverage create a real moat.	Competition from Anta, Nike, Adidas, and newer brands remains intense.
Repeatable cash flow	16/20	FCF was positive in 2021-2025; five-year average FCF was CNY 3.521bn; 2025 FCF/net income was 1.22.	2025 FCF was below the 2021 high, so growth cannot be extrapolated.
Capital return	10.5/15	2025 ROE was 10.6% and ROIC was 14.7%, still above ordinary apparel retail levels.	ROE declined from 19.0% in 2021 to 10.6% in 2025; ROIC declined from 35.6% to 14.7%.
Balance sheet resilience	9/10	2025 cash and equivalents were CNY 16.717bn, total debt was CNY 2.055bn, and net cash was CNY 14.662bn.	Large cash and financial assets are haircut in valuation; they are not treated as fully distributable cash.
Growth quality	6/10	2021-2025 revenue CAGR was 7.0%, with footwear better than the group.	Net profit declined over the five-year period, and gross margin fell from 53.0% to 49.0%.
Management and accounting	11.0/15	Management/accounting score is 73/100; payout ratio is about 50%, share count is broadly stable, and the annual report discloses inventory and receivable key audit matters.	Incentive dilution, related parties, financial assets, and inventory estimates need ongoing tracking.
Total	75.5/100	High-end watch-quality business that qualifies for a boundary BUY.	It is not an excellent-business score because capital returns and profit growth have cooled.

Management And Accounting

Subcheck	Weight	Score	Evidence	Reading
Shareholder alignment	20	15/20	Founder Li Ning serves as executive chairman and joint CEO; the senior team has retail and consumer experience.	Pass, but control-shareholder and related-party issues require continued review.
Capital allocation	25	18/25	2025 dividend was CNY 0.5695/share; payout ratio was 50%; dividend/FCF was about 41%; the balance sheet is net cash.	Pass, although cash and financial-asset efficiency is still only average.
Incentives and dilution	20	14/20	The 2024 share plan has an aggregate cap near 5% and an annual grant cap near 0.5%; no share awards were granted in 2025; issued shares were basically stable.	Watch; options and restricted shares still need annual quantification.
Accounting quality	20	15/20	2025 key audit matters covered inventory provisions and receivable impairment; FCF/net income was 1.22.	Pass/watch; inventory estimates and the discount environment remain central risks.
Governance and related parties	15	11/15	Four independent directors form a board majority of 7; the audit committee consists of independent directors; Viva Goods and other related-party relationships are disclosed.	Watch; founder-family and related-party transactions need continued tracking.
Total	100	73/100	Converted to 11.0/15 in the total score.	The largest deductions are incentive dilution, related parties, and inventory estimation.

Financial Audit

The valuation uses the five complete fiscal years from 2021 to 2025. The financial currency is CNY, the quote currency is HKD, and valuation is first formed in CNY before translation at 1 CNY = 1.1534 HKD. The CNY 10-year risk-free-rate date is 2026-07-07. ROIC is used as a supporting metric because the annual report does not directly disclose every invested-capital detail.

Year	Revenue	Net income	OCF	Capex	FCF	ROE	ROIC	FCF/revenue	FCF/net income
2025	CNY 29.598bn	CNY 2.936bn	CNY 4.852bn	CNY 1.277bn	CNY 3.575bn	10.6%	14.7%	12.1%	1.22
2024	CNY 28.676bn	CNY 3.013bn	CNY 5.268bn	CNY 1.493bn	CNY 3.775bn	11.5%	13.3%	13.2%	1.25
2023	CNY 27.598bn	CNY 3.187bn	CNY 4.688bn	CNY 1.824bn	CNY 2.864bn	13.1%	12.5%	10.4%	0.90
2022	CNY 25.803bn	CNY 4.064bn	CNY 3.914bn	CNY 1.888bn	CNY 2.025bn	16.7%	19.9%	7.8%	0.50
2021	CNY 22.572bn	CNY 4.011bn	CNY 6.525bn	CNY 1.160bn	CNY 5.366bn	19.0%	35.6%	23.8%	1.34

Balance Sheet Summary

Year	Cash and equivalents	Current financial assets	Non-current financial assets	Total debt	Net cash/debt
2025	CNY 16.717bn	CNY 1.093bn	CNY 2.601bn	CNY 2.055bn	CNY 14.662bn
2024	CNY 7.522bn	CNY 8.264bn	CNY 2.828bn	CNY 1.953bn	CNY 5.569bn
2023	CNY 5.445bn	CNY 3.494bn	CNY 9.465bn	CNY 2.551bn	CNY 2.894bn
2022	CNY 7.383bn	CNY 0.643bn	CNY 11.198bn	CNY 2.157bn	CNY 5.226bn
2021	CNY 14.746bn	CNY 0.401bn	CNY 3.505bn	CNY 1.344bn	CNY 13.402bn

The quality reading is mixed but investable. Cash flow has not broken: 2025 OCF/net income was 1.65 and FCF/net income was 1.22. The warning is that 2021 was the stronger profit and FCF year, while 2025 profit and ROE were much lower. Inventory remains a key audit matter: 2025 inventory carrying amount was CNY 2.852bn, the provision was CNY 159m, and average inventory turnover was 64 days, unchanged from 2024.

Shareholder Return

Metric	Latest year	Five-year observation	Reading
Dividend yield	About 4.4%	Dividend per share increased from CNY 0.4597 in 2021 to CNY 0.5695 in 2025.	Provides a waiting return, but is not the main FV anchor.
Payout ratio	50%	The company disclosed a 2025 total payout ratio of 50%, with policy tied to earnings and cash flow.	Sustainability depends on FCF stability.
Dividend/FCF	About 41%	2025 dividends were covered by FCF.	Not over-distributing cash flow.
Buybacks and dilution	Share count broadly stable	40.9375m treasury shares were cancelled in 2024; no employee option shares were issued in 2025; only 13,100 shares came from convertible securities.	Neutral to modestly positive for per-share value.

Valuation

The CNY 10-year sovereign yield used as the risk-free-rate reference is 1.7406% as of 2026-07-07. FCF is the main anchor. Because 2025 FCF is below the 2021 peak, the base case assumes 0% growth and uses a 10x FCF multiple. The conservative case haircuts both FCF and the multiple; the upside case is only a mild recovery sensitivity.

Current price is 14.82 HKD, market capitalization is about 38.3bn HKD, share count is about 2.585bn, the financial currency is CNY, and the quote currency is HKD at 1 CNY = 1.1534 HKD.

Scenario	Core assumption	Multiple basis	Fair market value	FV/share	Current price/FV	Weight	Next verification
Conservative	Normalized FCF of CNY 3.0bn, 8x multiple, balance-sheet adjustment of CNY 13.493bn.	g = -2%, discounted for profit decline, promotions, and lower ROIC.	CNY 37.493bn / HKD 43.252bn	16.73 HKD	0.89	35%	Gross margin stays below 49% or FCF falls below CNY 3.0bn.
Base	Normalized FCF of CNY 3.4bn, 10x multiple, balance-sheet adjustment of CNY 13.493bn.	g = 0%; five-year FCF CAGR is negative, so no growth multiple is assigned.	CNY 47.493bn / HKD 54.778bn	21.19 HKD	0.70	45%	FCF stays near CNY 3.3-3.6bn and inventory turnover remains stable.
Upside	Normalized FCF of CNY 3.6bn, 11x multiple, balance-sheet adjustment of CNY 13.493bn.	g near 1%, still below revenue CAGR and constrained by profit decline.	CNY 53.093bn / HKD 61.237bn	24.42 HKD	0.61	20%	Footwear keeps growing and gross margin returns toward 50%.

Cross-checks:

• FCF: base FV is 21.19 HKD, so current price/base FV is 0.70. That just clears the BUY boundary but does not satisfy a 2x condition.
• Earnings: 2025 net income was CNY 2.936bn. Applying a 12x earnings check plus the same balance-sheet bridge lands near the base FV, so the earnings anchor does not contradict the FCF anchor.
• Reverse DCF: after the haircut balance-sheet bridge, the current market value implies roughly 6-7x operating FCF, already pricing low growth and discount pressure.
• Balance sheet: cash and financial assets provide downside protection, but they are haircut and are not counted as fully distributable cash.
• Shareholder return: about 4.4% dividend yield and dividend/FCF near 41% provide a waiting return, but they are not added again on top of FV.

Balance Sheet Bridge

Item	Book value	Inclusion rate	Included value	Rationale
Cash and equivalents	CNY 16.717bn	80%	CNY 13.373bn	Cash is strong, but operating cash and onshore fund friction deserve a haircut.
Current financial assets	CNY 1.093bn	80%	CNY 0.874bn	Short-term financial assets are included with a liquidity discount.
Non-current financial assets	CNY 2.601bn	50%	CNY 1.301bn	Annual reports include FVTPL private funds and other assets with lower liquidity and transparency.
Borrowings, notes, leases, and preference claims	CNY 2.055bn	-100%	-CNY 2.055bn	Senior claims ahead of ordinary equity, including the lease-liability basis.
Minority interest, deferred tax, dilution, or contingencies	CNY 0.000bn	0%	CNY 0.000bn	No separate material deduction was identified in this memo.
Total			CNY 13.493bn	Added after the FCF multiple to bridge to equity value.

Buy And Tracking Discipline

Item	Conclusion
Current action	BUY, but only a borderline BUY; not a 2x high-signal case.
Buy condition	Current price/base FV should remain at or below 0.70, while FCF stays above CNY 3.0bn and inventory turnover does not deteriorate.
2x condition	Current price/base FV <= 0.50 is not met; it would require a much higher base FV or a much lower share price.
Follow-up focus	Gross margin, discount intensity, footwear growth, inventory turnover, incentive dilution, related parties, and use of cash/financial assets.

Risks To Track

Current Risks

Risk	Reading	Effect on valuation or signal
FCF quality	Watch	FCF is positive and covers dividends, but 2025 remains below the 2021 peak, so no growth multiple is justified.
Balance sheet	Pass	Net cash is strong and is the main reason conservative FV remains above current price.
Accounting and governance	Watch	Inventory provisions are a key audit matter; related parties and equity incentives need continuous quantification.
Shareholder return	Pass	A 50% payout ratio and roughly 4.4% dividend yield provide a waiting return without exhausting FCF.

Re-rating Triggers

Signal	Meaning
Gross margin returns above 50% for multiple periods while inventory turnover does not worsen.	Base growth can move from 0% toward about 1%, allowing a modest multiple upgrade.
FCF falls below CNY 3.0bn for consecutive periods or dividend/FCF rises above 70%.	BUY fails and the signal should move back to WATCHLIST or AVOID.
Footwear revenue turns negative while discounting continues to widen.	Moat and growth-quality scores should fall, and the base multiple should move below 10x.
Equity incentives, related-party exposure, or financial-asset losses expand materially.	Management/accounting score should be reduced and the signal downgraded.

Research statement: this memo is for research only and is not personalized investment advice.

Data Sources

Use	Source	Date	URL
Current price, market capitalization, share count, and five-year financial baseline	Market and financial data platform	2026-07-07	https://quote.eastmoney.com/hk/02331.html
2021-2025 financial statements, business breakdown, dividends, governance, incentives, and risk disclosures	Li Ning investor-relations annual reports	2022-2026	2025, 2024, 2023, 2022, 2021
2025 annual results, dividend, and operating outlook	Li Ning annual results announcement	2026-03-19	https://doc.irasia.com/listco/hk/lining/announcement/a332504-ew_02331ann_19032026.pdf
Risk-free rate	ChinaBond government-bond yield curve	2026-07-07	https://yield.chinabond.com.cn/cbweb-mn/yield_main?locale=zh_CN
Financial and quote currency conversion	FX market data	2026-07-07	https://quote.eastmoney.com/center/gridlist.html#forex