We are again impressed by the retail sales and operating leverage in 1H21E.Although NP margin in 1H21E already exceeded its long-term target, we staypositive as the mania of domestic fashion continues to open up more room forbrand elevation. Hence we reiterate BUY and raised TP to HK$103.82, based on55x FY22E P/E (vs prior 45x FY22E P/E for recent sector re-rating).1H21 positive profit alert issued, a significant beat despite highexpectation. Li Ning expects its net profit to grow by 160%+ YoY to at leastRMB 1.8bn in 1H21E, which beat BBG est. by 25%, driven by : 1) significantsales growth of 60%+ (vs Anta group’s 50%+) and 2) OP marginimprovement (implying a significant operating leverage). We attributed thisto: 1) Xinjiang cotton Incident, 2) recent brand upgrades (e.g. signing of newbrand ambassador Xiao Zhan/肖戰) and 3) improved retail discounts.We estimate no meaningful slowdown of retail sales growth in 2Q21Eand ~50% YoY growth vs 1H19. Given Li Ning’s wholesale businessesnature (~48% of FY20 sales), 60% YoY sales growth in 1H21E effectivelyimplies a faster retail sales growth, which is as fast as 70%+ YoY in 2Q21E,according to our est., comparing to 85-90% YoY in 1Q21. This also implies a50% retail sales growth vs 1H19 according to our est..We stay optimistic on 2H21E and its long-term margin potential. Retailsales growth in Jun 2021 was still fast (e.g. ~38% YoY sales growth on Tmallduring 618 Festival), but we are not surprised to see some slowdown vs Apr2021. However, we are still optimistic on the earnings growth onwards in2H21E given the rather conservative consensus, especially on the level ofoperating leverage and NP margin expansions (already achieved 18% NPmargin in 1H21, vs 12% in FY20 and exceeded the long term target of 15%+by management) supported by various growth drivers: 1) domestic fashioncontinues to gain tractions, 2) further ASP increases by brand elevation, and3) boost in efficiency under the new CEO, etc.Our FY21-23E EPS is 15-30% above consensus; Lifted TP to HK$ 103.82.We maintain BUY and lifted TP to HK$ 103.82, based on 55x FY22E P/E(from 45x FY22E), given a 3-year core NP att. CAGR of 40%. Currentvaluation at 44x FY22E P/E, in our view, is still attractive. We revised up ourFY21E/ 22E/ 23E NP att. estimates by 30%/ 24%/ 21% to factor in better GPmargin and operating leverage.