Li Ning 2331
Posted: Tue Jun 24, 2008 10:42 amNot vested. From UOB-Kay-Hian
Li Ning – Gearing up beyond 2008
Li Ning, China’s largest domestic sportswear company, has recorded strong sales ytd, with preliminary orderbook for 1Q-3Q08 up over 50% yoy.
To offset the hike in product costs, the company has raised product prices for 3Q-4Q08 by 3-5%. Management expects a steady gross margin of 48% this year. Li Ning’s ability to pass on the cost increases to customers implies its strong brand equity.
In Jan-May 08, Li Ning recorded a samestore sales (SSS) growth of over 20%, accelerating from 16-17% in 2007. Ytd, the progress in store openings is in line with schedule, and the company maintains its target to add at least 867 stores this year, raising the total number to 6,100 at
end-08.
In particular, the company will open six flagship stores before Beijing Olympics begin in August. Each store will have 800-1,000sqm of sales floor area and investment of Rmb1.3m-1.5m.
Li Ning’s strong growth this year is partly due to the enthusiasm over sportswear triggered by the Beijing Olympics. However, we expect the robust growth of China’s sportswear market to sustain
beyond 2008 Beijing Olympics.
Euromonitor and ZOU Marketing forecast China’s sportswear market to grow at 20-30% CAGR for 2007-12. The main forces at work to propel the growth include burgeoning income growth, urbanisation and increasing flavor for sportswear among the youths.
Among domestic sportswear companies, Li Ning should be one of the few with sustainable development potential. In recent years, Li Ning has developed strong nich in mid-end markets in second- and third-tier cities. The critical mass enables Li Ning to upgrade its brand to higher-end
positioning. We anticipate Li Ning’s net profit to grow at 28% CAGR from FY07 to FY10.
Current valuation is attractive at 26x FY08 PE and 20.5x FY09 PE. Maintain BUY with target price of HK$29.00 based on DCF (WACC = 10%; terminal growth = 3%).
Li Ning – Gearing up beyond 2008
Li Ning, China’s largest domestic sportswear company, has recorded strong sales ytd, with preliminary orderbook for 1Q-3Q08 up over 50% yoy.
To offset the hike in product costs, the company has raised product prices for 3Q-4Q08 by 3-5%. Management expects a steady gross margin of 48% this year. Li Ning’s ability to pass on the cost increases to customers implies its strong brand equity.
In Jan-May 08, Li Ning recorded a samestore sales (SSS) growth of over 20%, accelerating from 16-17% in 2007. Ytd, the progress in store openings is in line with schedule, and the company maintains its target to add at least 867 stores this year, raising the total number to 6,100 at
end-08.
In particular, the company will open six flagship stores before Beijing Olympics begin in August. Each store will have 800-1,000sqm of sales floor area and investment of Rmb1.3m-1.5m.
Li Ning’s strong growth this year is partly due to the enthusiasm over sportswear triggered by the Beijing Olympics. However, we expect the robust growth of China’s sportswear market to sustain
beyond 2008 Beijing Olympics.
Euromonitor and ZOU Marketing forecast China’s sportswear market to grow at 20-30% CAGR for 2007-12. The main forces at work to propel the growth include burgeoning income growth, urbanisation and increasing flavor for sportswear among the youths.
Among domestic sportswear companies, Li Ning should be one of the few with sustainable development potential. In recent years, Li Ning has developed strong nich in mid-end markets in second- and third-tier cities. The critical mass enables Li Ning to upgrade its brand to higher-end
positioning. We anticipate Li Ning’s net profit to grow at 28% CAGR from FY07 to FY10.
Current valuation is attractive at 26x FY08 PE and 20.5x FY09 PE. Maintain BUY with target price of HK$29.00 based on DCF (WACC = 10%; terminal growth = 3%).
