Lin Ning profit warning triggers slump

Shares in Li Ning Company, the largest sportswear maker in China, plunged to a two-year low yesterday after it said revenue and profit had declined for the first half of the year.

The company issued a profit warning early yesterday, saying sales revenue would decline by 5 per cent for the period and the margin of profit attributable to equity holders would drop to 6 per cent from nearly 13 per cent a year earlier.

The news triggered a sharp fall in the company's share price, which slumped as much as 15.7 per cent to close at HK$11.54 yesterday. Over the past 12 months, the stock has fallen by more than 55 per cent.

Li Ning's local rivals also saw declines yesterday. Anta fell 5.4 per cent to HK$13.58, Xtep 3.9 per cent to HK$5.16, and China Dongxiang was down 6.8 per cent to HK$2.20.

'Many investors had expected to see improvements in Li Ning's performance; however, what the company revealed made them very disappointed,' said Wendy Huang, head of research with SinoPac Securities (Asia).

The Beijing-based company has recorded a decline in order volumes for three quarters in a row. It said yesterday that orders for the fourth quarter of this year had decreased at a 'high-single-digit rate'.

The company, founded by gymnast-turned-businessman Li Ning, has struggled to maintain its leading position in the face of competition from international brands such as Nike and adidas, and local rivals including Anta, Xtep and 361 Degrees.

Li Ning has been trying to streamline its distribution channels and rebuild its brand name. The company said its financial performance would be affected in the near term, but insisted the efforts should contribute to its long-term development.

'But investors are often not so patient. They have many other options,' said Huang.

Anta, Peak, 361 Degrees and Xtep all recorded double-digit growth in order volume for the first three quarters this year. Unlike Li Ning, which aims to build itself into an international brand, they mainly target the mass market in second and third-tier mainland cities.

Li Ning said the total number of its branded stores reached 8,163 as of the end of last month. It has completed the integration of 256 single-store sub-distributors and plans to bring on board another 100-plus stores by the end of this year.

'The direction of the company's reforms might be right,' said Huang. 'But the capital market will judge a company more by its performances rather than estimation for the future.'