Li Ning Co. (2331)

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#1
Hi buddies, Li Ning has came under my watchlist because of its growth potential in the global market. Chinese athletes have performed very well in the recent years. They dominate in ping pong, badminton, gymnastics and making remarkable progress into tennis (Li Na win french open) and tracks (Liu Xiang win hurdles). These athletes are great spokesman for Li Ning, just like what Nike is currently enjoying.

Recently Li Ning's share price has dropped because it's about 30% annual revenue growth rate has slowed to about 10%. Anyone has knowledge in this industry, please share your views! Big Grin



Li Ning Company Limited is principally engaged in brand development, design, manufacture, sale and distribution of sport-related footwear, apparel, equipment and accessories in the People’s Republic of China (the PRC). Its products mainly include footwear, apparel, accessories and equipment for sport and leisure uses under its own LI-NING brand. It also directly manages retail stores for the LI-NING brand. The Company has four segments: LI-NING brand, Double Happiness brand, Lotto brand and all other brands segments. On 15 May 2009, the Company acquired a 100% equity interest in Kason Sports (Hong Kong) Limited (Kason). Kason together with its subsidiary is principally engaged in the research and development, manufacture and sale of badminton sports equipment in the PRC.
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#2
Copy n paste from iPhone, so pardon my pasting skills. Smile
Gist of article is on market segmentation which Li Ning seems unable to occupy a strategic segment.


Li Ning Loses Way after Wrong Business Turn
A sports apparel pioneer named after a famous Olympics gymnast is in trouble after shifting its focus
 
A new business focus was supposed to strengthen the competitive position of China's leading consumer sports apparel brand Li Ning Co.
Instead, the year-long "make the change" marketing and branding campaign has weakened the company, hurt sales, damaged investor confidence and emptied several executive suites.
On May 24, Li Ning announced the resignations of three senior executives – COO Guo Jianxin, Chief Marketing Officer Fang Shiwei, and Director of E-commerce Lin Li. A source blamed the exodus on the failed campaign.
That same day, Li Ning's Hong Kong-listed shares declined 8.4 percent. The stock has continued losing ground ever since, falling to HK$ 13.38 on June 9, far below the past year's peak of HK$ 29.35. The company's market capitalization has declined more than HK$ 16.8 billion.
Third-quarter shoe and apparel orders fell 17 percent from a year earlier, and 6 percent from the previous quarter, the company said in April.
Li Ning managed to report a 1.1 billion yuan net profit for 2010. But it was badly beaten in the earnings race by major rival Anta Sports Products, which registered a 1.5 billion yuan net profit last year.
Sales Slip
Optimism had reigned in July 2010 when Li Ning announced its transformation with a new company logo and the "make the change" marketing slogan. The campaign including a redefined product lineup, with a shift toward more upscale sporty clothing, footwear and accessories, and away from less expensive leisure-wear products.
The company also consolidated its sales channels, encouraged takeovers of small dealers by larger outlets, and raised prices.
Justifying the transformation was CEO Zhang Zhiyong, who predicted in a company report that China's ongoing urbanization and a rising market for sporting goods would give his company's products "great room for growth."
He also said "increasing signs that sports products are being replaced by leisure products in China" was "only temporary."
But analyst Zhang Shenwei of the Samsung Economic Research Institute said the executives were overly optimistic about moving up the consumer ladder. The simple fact was that the new emphasis on the company's sports line failed to win consumers.
"An upgrade in consumer demand is a long and gradual process," analyst Zhang said. "It's hard to say that China's consumers in the next 10 years will become particular about the professional aspects of what to wear, (such as) wearing a particular suit when playing ping pong, and changing into another kind of wear when playing basketball.
"To focus too much on professional sportswear is, in effect, giving up the market of leisure fashion," he said.
The effort to consolidate sales channels failed as well.
Li Ning had achieved rapid growth in the past by expanding sales channels. Its chain had grown to 7,915 stores by the end of 2010, from 2,887 when the company went public in 2004. Revenues totaled 9.5 billion yuan in 2010, up from 700 million yuan in 2001.
The consolidation, designed to improve single-store performance, encouraged large dealers to acquire smaller ones.
But the expansion strained Li Ning's bottom line as labor and rent costs climbed. And just as the small dealers closed, rival Anta announced plans to expand to 10,000 stores nationwide by the end of the 2011.
Thus, the timing of Li Ning's scaleback was "not appropriate," said Wang Yiming, marketing director at the consultancy Highteam.
Li Ning's consolidation of sales channels actually helped its competitors by giving them room to expand their own sales channels, said analyst Zhang. That's because many small dealers sell several brands, including products made by Li Ning and its competitors.
Highs and Lows
Li Ning was established in 1990, at the dawn of China's sports product market. The company was named after its chairman, a champion Olympic gymnast from the 1980s whose accomplishments made him a national idol.
Li Ning soon had a domestic market foothold. And by the turn of the century, the company was benefiting from the start of a golden decade for sporting goods in China.
The boom attracted many other new businesses, and by 2008 Li Ning found itself battling not only international competitors such as Nike and Adidas, but domestic rivals including Anta, Peak Sport Products and 361 Degrees International as well.
Following the Nike-Adidas business model, Li Ning never built its own production factories. Anta and 361, however, started as contract manufacturers for brand names, and thus were in a good position to go head-to-head with Li Ning with their own products.
Manufacturing gave the rivals cost advantages over Li Ning, and soon they were a force to be reckoned with, especially in China's smaller cities and the middle-end market.
The latest transformation at Li Ning did not address this challenge from contractors-turned-brands.
Another competitive slip for Li Ning was last year's decision to focus on mid- to high-end products – and to start charging higher prices to reflect a sharper focus on quality.
But a Ling Ning dealer in Beijing told Caixin the company's products have been more difficult to sell since the price hikes, and that the decision has prompted some shops to consider cutting orders.
A source close to Li Ning management told Caixin the company "is now sandwiched in the middle of the industry" with products that fit neither a "sufficiently high" market segment, nor one that is "sufficiently low."
True, Li Ning's upper rung products are priced below similar products made by big foreign brands. But the Beijing dealer said the "difference in prices makes little sense" these days in ever-wealthier China since consumers would just as well "buy a top brand with a little more money."

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#3
Thanks Arthur for the great info! Now I get a better picture on why Li Ning isn't performing. I've look at some of the goods sold at Ion orchard. The price of the badminton products is quite close to Yonex. I find that the price doesn't look attractive, as Li Ning is still being perceived by public as a "chinese" product.
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#4
No problem. Smile

I think the difficulties is made even more apparent with ytdy strong earnings announcement of Nike Inc.
Sales rose in practically all regional markets from America to Asia Pac.

http://www.marketwatch.com/story/nike-ju...2011-06-28

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#5
(29-06-2011, 12:48 PM)arthur Wrote: No problem. Smile

I think the difficulties is made even more apparent with ytdy strong earnings announcement of Nike Inc.
Sales rose in practically all regional markets from America to Asia Pac.

http://www.marketwatch.com/story/nike-ju...2011-06-28

Good news to the shareholder of Berkshire! I must say that Nike did a great job in marketing. Hopefully Li Ning can improve their marketing materials... Currently I still think their advertisement doesn't look appealing to the consumers.
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#6
If the negative sentiment continues and share price continue to drop, i may consider buying this company. Li Ning is basically a marketing company, with support from gov to boost China image, export revenue and other soft power. If China continues to grow, I see Li Ning as a good potential to mimic the growth of Nike. But currently, it's also facing competition from Anta and other local brands.

Trading at 7.5x PE, with 5% dividend.
Hope to find buddies interested in this type of company...

Li Ning sees fall in H1 revenue; shares plunge

Thu Jul 7, 2011 1:32am EDT

By Donny Kwok

HONG KONG, July 7 (Reuters) - Shares of Chinese sports brand Li Ning Co Ltd fell to their lowest in more than two years after the company said it expected a fall in first-half sales and profit margin due to rising costs and a revamp in its distribution channels.

Li Ning, which sells everything from running shoes to sports bags, also said margins for the rest of the year could narrow.

The stock, which has lost 29.1 percent so far this year, fell as much as 15 percent to HK$11.66, its lowest since March 2009. The shares pared some losses to trade down 14.7 percent, lagging the Hang Seng Index's 0.66 percent rise.

"The figures were a disappointment and that its lower profit margin worried investors the most," said Alex Wong, a director at fund-management firm Ample Finance Group.

"Its a type of company (that we are concerned about) nothing but marketing," Wong said, adding the firm needs to further strengthen marketing and branding to boost margins.

In a filing to the Hong Kong bourse, Li Ning said it expected revenue to decline 5 percent in the first half of 2011 from a year ago as it moves to revamp distribution channels.

Li Ning, China's home grown sporting goods brand, is expected to announce first-half results in August.

The company, founded by a famous Chinese athlete with the same name who is known as the Prince of Gymnastics in China, said its gross profit margin was expected to decline by 1 percentage point due to a new wholesale discount policy and increases in raw material costs.

Profit margin attributable to shareholders is expected to decline to 6-7 percent in the first half from 12.9 percent a year ago.

Due to expected significant increases in raw material costs in the second half of 2011, Li Ning also forecast gross profit margin for the period to decrease from last year.

Profit margin attributable to shareholders for the full year 2011 is expected to decline by about 1-2 percentage points compared with the first half, it added.

Same-store sales growth maintained a low single-digit pace from January to June, with the total number of Li Ning brand stores at the end of June at 8,163. It did not give comparison figures.

TOUGH RACE AHEAD

Li Ning, whose founder and chairman had won three gold medals at the 1984 Los Angeles Olympics, is facing growing competition from foreign companies including Nike and Adidas (ADSGn.DE) and local rivals such as ANTA Sports Products Ltd and Peak Sport Products Co Ltd .

Analysts said they expected an increase in demand for higher-end sporting goods as Chinese income rises.

"Competition within the industry is intensifying and the overall competitive landscape is presently shifting," Chairman Li Ning said in the statement, adding the firm's financial performance would be affected in the near term.

"The group believes that the transformation of the industry, the shifts in the competitive landscape, and the adjustments it has made in its strategies will become clearer in the next two to three years," said Li.

Last week, Nike raised its sales forecast for its namesake brand, betting that strong Chinese and Brazilian demand and a price increase in the coming year will help it outpace rising costs.

Li Ning said order value for the fourth quarter of 2011 rose more than 5 percent year on year, though order volumes declined at a high single-digit rate.

Its growth in fourth-quarter order value was slower than rivals such as ANTA Sports' 25 percent rise and Xtep's 24 percent growth. (Additional reporting by Twinnie Siu; Editing by Lee Chyen Yee and Vinu Pilakkott)
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#7
(15-07-2011, 08:38 AM)Thriftville Wrote: If the negative sentiment continues and share price continue to drop, i may consider buying this company. Li Ning is basically a marketing company, with support from gov to boost China image, export revenue and other soft power. If China continues to grow, I see Li Ning as a good potential to mimic the growth of Nike. But currently, it's also facing competition from Anta and other local brands.

Trading at 7.5x PE, with 5% dividend.
Hope to find buddies interested in this type of company...

The problem with Li Ning and the rest of the other china sports companies is that it has no marketing power to be able to match the international brands. It's only appeal is from the patriotirc chinese but with a growing affluence they will be displaced to 2nd/3rd brands.
The only reason to invest in Li Ning is that you hope it will be taken over by one of the big international brands. combining the international power and local hero the merger will be able to control the chineses market. question is will the PRC govt allow such a takeover... i seriously doubt it.
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#8
(15-07-2011, 08:50 AM)Jacmar Wrote: The problem with Li Ning and the rest of the other china sports companies is that it has no marketing power to be able to match the international brands. It's only appeal is from the patriotirc chinese but with a growing affluence they will be displaced to 2nd/3rd brands.
The only reason to invest in Li Ning is that you hope it will be taken over by one of the big international brands. combining the international power and local hero the merger will be able to control the chineses market. question is will the PRC govt allow such a takeover... i seriously doubt it.

Hey Jacmar, thanks a lot for your reply!
Yeah, I also believe that Li Ning is still lagging behind in terms of marketing. China is now trying to move up the value chain, by relying less on manufacturing. Li Ning made a good move by outsourcing the production, and focus on marketing. It will take many years before they can perfect this skill.

See this Link
Li Ning is able to sponsor the National basketball team of Argentina and Spain. I guess it could be part of the inter-gov deal. As China become more influential, I believe more countries will agree to open their market to Li Ning.

Hope to hear your views! Big Grin

Link

Global Innovation, trends, Analysis
Whereto, China?
Ryan Cohen 7/11/11

I recently had the pleasure of taking a two week academic trip to China with Babson’s MBA program, where several dozen of my classmates and I were led through Beijing, Dalian, and Shanghai by the inimitable Robert Eng. During the course of the journey, our group visited with government officials, leaders from state-owned enterprises, and a number of businesses operated by domestic and foreign owners. While there are many interesting and non-trivial idiosyncrasies of doing business in China, such as the need for government contacts, I thought it would be more informative to share some of the broader business trends that became clear during the course of our visit.

First, China is beginning to capture more of the value chain. As the world’s third largest manufacturer, China has developed a solid reputation as a nation that builds products for Western companies to attach their brands. Apple is one of the most famous examples of this. Perhaps more surprisingly, Nike and Reebok both have their shoes manufactured in the same facility. Li Ning, China’s leading sports apparel maker and the number four sports apparel company in the world, also has its shoes made there. If you’ve heard of Li Ning, you’re ahead of the curve. If not, you probably will soon. Li Ning has begun opening stores in the United States and other countries overseas. In the U.S., it decided to launch its pilot store in Portland, OR, which seems like an odd choice until you realize that it’s right in Nike’s backyard. It’s a bold statement from a bold company and serves an appropriate example for the changing mentality of Chinese business; no longer content with the margins available to them making things for others to sell, the Chinese are now looking for ways to move up the value chain and capture the margins commanded by being a globally recognized brand.

Second, China is starting to look inward for markets. While the rest of the world is still staggering from financial crisis to financial crisis, China’s chugging along at a brisk 9 percent annual growth rate. Shanghai has joined the list of top tier metropolises, on par with London and Moscow, complete with a Starbucks and a McDonald’s around every corner. Shopping malls are awash in luxury brands. With that kind of affluence at home comes increased spending power, and Chinese companies are beginning to recognize the potential of the domestic market. (By Chinese companies, I also mean the Chinese government. State-owned enterprises still command roughly half of the country’s industrial assets, and the government has tentacles in just about every successful business in the country, private ownership or no.) As evidence of this, the 12th Five Year Plan explicitly discusses the yawning trade imbalance that China has created with the U.S. and other nations, and proposes to address this dependence on foreign consumption by directing more goods to the domestic market. It’s uncertain what the government will do about Chinese households’ astronomical savings rate.

Third, national stability is not a guarantee. Incidents of social unrest have been growing more frequent in the past couple years. Chaffed by a widening wealth disparity and the trampling approach to development, Chinese citizens are expressing their dissatisfaction in a way that makes government officials and many members of the business community nervous. Restrictions on freedom of speech and the flow of capital have done a great deal to boost the Communist Party agenda of security and growth, but they’ve also created an economic and social pressure cooker. The 12th Five Year Plan seeks to address these concerns by explaining how the government plans to handle rising inflation and housing costs (regulatory controls), the income gap (higher taxes for the rich), and the blistering pace of development (cleaner environmental standards and lower growth targets). Perhaps more revealing, social stability was a concern voiced by several businessmen we visited during the trip. One Chinese business leader who spoke to our delegation put it especially elegantly: “China will continue to grow as long as the Communist Party is in power. The Communist Party will stay in power as long as China continues to grow.”

The state of Chinese development offers an interesting puzzle: free market incentives bounded by strict financial and political controls. The tremendous opportunities of doing business there are matched by equally tremendous challenges. From this point in history, it almost seems possible that Communist China will continue growing in perpetuity, achieving global dominance in our lifetimes. Or the entire system could collapse spectacularly, and we will ask each other why we didn’t see it coming.
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#9
I've seen a trend in the sports industry. More athletes seem to be donning Li Ning apparels! It is extremely evident in the recent Olympics where even U.S athletes are wearing their brands!

Their products (at least to me) seem to be of good value (reasonably priced with reasonably good quality). The only problem I see is how they can get the "china brand = lousy quality" mindset out of people's mind. Oh well, long time ago, people used to have negative thoughts about Japanese brands (e.g. Casio, Toyota etc.) too.
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#10
loaded some Li Ning, no heavy weight, as general market condition not very bright.
its 50d sma just crossed 200d sma

(15-08-2012, 01:01 AM)pantoo Wrote: I've seen a trend in the sports industry. More athletes seem to be donning Li Ning apparels! It is extremely evident in the recent Olympics where even U.S athletes are wearing their brands!

Their products (at least to me) seem to be of good value (reasonably priced with reasonably good quality). The only problem I see is how they can get the "china brand = lousy quality" mindset out of people's mind. Oh well, long time ago, people used to have negative thoughts about Japanese brands (e.g. Casio, Toyota etc.) too.
i'v found their product quality quite decent, and price wise attractive.
almost all my badminton staff are from li ning nowBig Grin
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