Hong Kong Stock Exchange

More woes at Li Ning as finance chief quits

Chief financial officer will remain as adviser to the company, which is struggling with plunging sales and a weakened brand image

PUBLISHED : Saturday, 13 October, 2012, 12:00am
UPDATED : Sunday, 14 October, 2012, 1:07pm

The resignation of the chief financial officer at mainland sportswear retailer Li Ning adds uncertainty to a company already struggling with plunging sales and a weakened brand image.

The Beijing-based company said yesterday Chong Yik Kay had resigned, effective from November 1, but would remain as an adviser to the company.

Chong's move follows that of the company's chief executive, Zhang Zhiyong, who stepped down in July.

Li Ning, backed by Singapore sovereign fund GIC and US private equity fund TPG Capital, announced a major management reshuffle in July, appointing Kim Jin-goon, a partner at TPG, as the executive vice-chairman.

Company founder and chairman Li Ning, a former Olympic gymnast, said in a filing to the Hong Kong stock exchange yesterday that the company was in talks with potential candidates for the position of chief financial officer. It is also looking for a new chief executive.

"The company is undergoing a transformation to improve its inventory level and sales channels. But I really doubt whether it's able to make it without the core members in the management team," said Elyse Wang, an analyst at Haitong International Securities.

Li Ning shares rose 3.43 per cent to HK$4.83 yesterday, with investors signalling they think the worst time for the sportswear sector was about to end.

Other sportswear makers such as Anta Sports Products, Peak Sport Products, 361 Degrees International and Xtep International also rose, by 1 per cent to 4.8 per cent, outpacing a 0.65 per cent gain in the broader market.

A report issued by Merrill Lynch yesterday said it was turning more positive on the sportswear sector, which has been suffering from overexpansion and shrinking customer demand following the 2008 Beijing Olympics.

"We expect the sector's cash balance will continue to improve as, in our opinion, the inventory buy-back is over and brands will gradually tighten their credit terms and inventory," analyst Raymond Ching said in the report.

China also said reduced markdowns on the retailers' new autumn and winter collections, profitability improvement for certain large brands and accelerated industry consolidation were all signs of improvement.

Some analysts remain bearish on the industry. Eugene Mak, an analyst at Core Pacific-Yamaichi Securities, said there was no major improvement in the market for sports shoes and apparel.

"The orders received by domestic retailers for the first quarter of 2013 all fell 10 to 20 per cent from a year earlier, showing that the market demand is still very weak. We don't think the situation will change earlier than the middle of next year," he said.

Li Ning, the second-largest domestic sportswear retailer by sales, reported an 85 per cent drop in profit for the six months to June.