Investment Summary
Li Ning Company was founded in 1990 and has a history of 30 years. It was founded by the famous domestic gymnast Li Ning. In the 30-year history, the brand has experienced rise, peaks, adjustments, and then started again. In recent years, it has successfully completed the brand upgrade with the rise of sports fashion and national fashion. After three years of reform, the company’s revenue has returned to positive growth. The company recorded a revenue of RMB 13.870 billion in 2019, an increase of approximately 138.15% from 5.82 billion in 2013 in the past six years.
“single brand, multi-category, and multi-channel”
In 2018, Li Ning proposed a “single brand, multi-category, and multi-channel” development strategy, and extended the product lines of Li Ning, China Li Ning and Li Ning Young from the “Li Ning” brand to cover different positions, accounting for nearly 99% of total revenue. In addition to the core brands, the company also owns, licenses or joint ventures with third parties other brand sports products, including DHS table tennis, AIGLE outdoor sports products, DANSKIN dance and yoga fashion fitness products and Kason badminton products.
Core categories accounted for most of the company’s revenue
The company’s product categories cover five core categories, including basketball, running, training, badminton and sports fashion. In terms of products, it takes into account the brand’s sports genes while enhancing the product’s fashion and cultural attributes. Among the core categories, the badminton business is mainly sold through professional channels, while the others are mainly sold through retail. In terms of retail sales, the company’s retail sales of core categories accounted for 98% of the overall retail sales in 1H20. When continuously investing resources in core products, the company can more effectively improve product competitiveness and create product differentiation in a market that tends to be homogeneous.
Rising with China trend, brand image improved
In February 2018, during the New York Fashion Week, Tmall and the American Fashion Designers Association jointly organized the “Tmall China Day”, and Li Ning became the first Chinese sports brand to land in New York Fashion Week. Overnight, China Li-Ning became a popular keyword in online social media. China Li-Ning first appeared at the end of October 2017 and was mentioned in the official WeChat account. As the company’s deployment in the sports fashion series, it emphasizes being “Li Ning’s original endorsement” and “Being Li Ning of China”. Prior to this, China trend has been promoted by niche designer brands. After Li Ning joined, a new wave of China trend has been set off.
Valuation and Investment Recommendation
The company has completed a number of reforms in recent years. With more efficient operating capabilities and the rise of the national trend, we expect the company’s revenue growth in FY20/FY21/FY22 to be 5%/25%/25%. During the epidemic, the company’s direct business has a greater impact, but it is expected that the overall year-round will still record a mid-single-digit positive growth. With the increase in the proportion of the company’s direct operation and the establishment of its brand image, the company’s GPM is expected to increase YoY. The GPM in FY20/FY21/FY22 is predicted to be 50%/51%/52%. Considering that the company’s brand has huge growth potential and future revenue growth potential, we expect the company’s FY20/FY21/FY22 EPS be RMB 66.58/82.54/107.58 cents. The target price of HK$48.55 corresponds to the expected P/E of 61.98/50.00/38.36x for 2020/2021/2022, and the current price is given a Accumulate l rating.
(Closing price as at 14 December)
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note:
Timothy Chong received Bachelor’s Degree with first class honor in Banking and Finance from University of Leicester. He is currently studying Master of investment management in Hong Kong Polytechnic University. Before joining Phillip Securities, Timothy worked at BOCOM international and he is equipped with years of experience in the capital market. Timothy is now a licensed research analyst at Phillip Securities and covers Consumer / Property Management sectors.
