Li Ning Company Ltd

Market puts the boot into troubled Li Ning

PUBLISHED : Wednesday, 25 May, 2011, 12:00am
UPDATED : Wednesday, 25 May, 2011, 12:00am


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Shares in China's largest sportswear maker, Li Ning, slumped more than 8 per cent yesterday, a day after the company revealed the resignation of three senior executives.

The development has triggered further concern in the market over the company, which has already reported a decline in orders for two quarters in a row.

Li Ning shares dropped 8.43 per cent to close at HK$13.90, their steepest fall in more than two months. The stock has shed 44 per cent in the past year, making it the third-worst performer in the MSCI China Index.

In a formal statement last night, the company said the three resigned in the past two months to pursue 'personal career development', adding that their leaving would not have any impact on company operations.

Analysts said the resignations were most likely related to the structural changes the company has been making since last year.

'Whatever the reason, investors will not take it as a good sign if three senior executives resign within such a short period,' Bocom International Group analyst Albert Yip said.

Li Ning, founded by gymnast Li Ning, is struggling to maintain its top spot in the mainland's highly competitive sportswear market.

Earlier this year, the company said orders for apparel and shoes for the third quarter had dropped 17 per cent and the total value for orders had fallen 8 per cent. That followed a decline of 7 and 8 per cent in apparel and shoe orders respectively in the previous quarter.

By contrast, its major local rivals Anta Sports Products, 361 Degrees and Xtep all recorded double-digit growth in orders for the same period.

Though the company expects a better performance in the fourth quarter, some analysts don't believe a turnaround is imminent.

Yip said it would take two to three years for Li Ning to streamline its distribution system, which is less efficient, with too many small operators. The company has said it has 90 distributors and 2,700 retailers across the country.

About 55 per cent of these retailers operate only one store.

Forrest Chan, a consumer researcher at CCB International Securities, said Li Ning had been losing its edge as it had positioned itself as a premium brand compared with other homegrown operators and now faced competing against stronger international rivals Nike and Adidas.

He said the sportswear industry was also feeling the heat of inflation as prices of raw materials soared last year. But with cotton prices plunging 30 per cent in the past two months, he expected sportswear companies would be able to raise their profit margins in the second half of this year.

Li Ning's net income rose 17.4 per cent to more than 1.1 billion yuan (HK$1.3 billion) last year, while revenue grew 13 per cent to 9.48 billion yuan.


The number of medals 'prince of gymnasts' Li Ning won at the 1984 Olympic Games. He claimed three gold, two silvers and a bronze