Apparel: Li Ning "Double-digit SSS Growth, Still Leading the Market&qu company, outlook, position, potential, leadership

yanghon

Key Points:
◆       Li Ning's CEO Mr. Zhang Zhiyong made a presentation about the company's recent operations and 2009 outlook at an analyst luncheon on Nov 11. His views give us confidence in Li Ning’s fundamentals and its leadership position in China’s sportswear market. We think the company has much potential to outperform in both 2008 and 2009.
◆       Li Ning recorded double-digit SSS growth in October with stable and healthy inventory turnover. The management has confidence that Li Ning can achieve its SSS target of 24~25% for the whole year 2008.
◆       There was a slowdown in October for the overall China sports market, in line with our expectation. Mr. Zhang believes October is a relatively low point for volatility but not a turning point because of the following short-term reasons:
1)       A period of rest after extraordinarily high growth between June and September.
2)       Nationwide warm weather during October delayed the sales of new arrivals for winter.
3)       Export-driven economy affected some southern provinces. The worst performance came from Zhejiang, Guangdong and Fujian.
◆       After several channel checks, we believe Li Ning's double digit SSS in October could be one of the fastest among peers. At the same time, sportswear is still the fastest growing retail category in China.
◆       Li Ning’s performance is in line with our expectation and our assumption for its 2009 earnings is conservative enough. We believe Li Ning can do better than its peers due to its good brand promotion and developing strategy enhancement. It remains our top pick.
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