Li Ning's share price plunges 10pc on dismal outlook for growth

PUBLISHED : Friday, 18 March, 2011, 12:00am
UPDATED : Friday, 18 March, 2011, 12:00am

Gymnast-turned-entrepreneur Li Ning failed to allay investor fears yesterday as shares of his eponymous company saw the biggest price decline since late December.

The sportswear company's stock price plunged 10.28 per cent, or HK$1.62, to HK$14.14, underperforming the Hang Seng Index, which dropped 1.83 per cent. Analysts said the fall was partly due to gloomy growth prospects outlined by the management and Li Ning's failure to meet market expectations of a pick-up in advance orders, or pre-orders, for the third quarter.

Chief executive Zhang Zhiyong said the retail pre-order value for the third quarter was likely to show 'high single-digit decline' compared with last year and this was partly because of plans to streamline distribution.

The Beijing-based sportswear firm, considered somewhat as a symbol of national pride, has been trying to become an international brand and enter the high-end market.

'As Li Ning is experiencing so many large-scale and drastic changes at the same time, the financial pain will be very heavy,' said Xiaopo Wei, an analyst at CLSA, who added that these changes would help break bottlenecks and sustain the business in the long term.

Li Ning's net income rose 17.4 per cent to more than 1.1 billion yuan (HK$1.3 billion) last year and revenue grew by 13 per cent to 9.48 billion. It announced a dividend of 19.97 fen.

'The full-year results met market expectations, but not for the right reasons,' said Wei, who said the company benefited largely from government grants and a cutdown in discretionary expenses to sales ratio, such as research and development as well as advertising and promotions.

Li Ning uses 90 distributors to sell its products through 2,700-odd retailers in China. Among the retailers, 56 per cent operate only one store. Li Ning has been streamlining retail operations and encouraging larger franchises to acquire the single-store businesses, which are less efficient for reasons of scale.

Forest Chan, an analyst at CCB International Securities, said the company was reorganising its retailing structure because it had not been doing well as a result of fragmented operations, and this would benefit the company in the long term.

Li Ning plans to consolidate a total of 400 small-scale retailers by the end of this year. So far, it has been able to consolidate 179.