Li Ning Co: Steady Expansion Of Performance

Li Ning Co (2331) recently announced its first half performance in 2008, during which the company's revenue increased by 60.3% to 3 billion 60 million yuan, and the pre tax profit plus depreciation and amortization (EBITDA) increased by 65.5% to 495 million yuan.

Equity holders should account for an increase of 68.3% to 333 million yuan in profits.

The equity holders should account for an increase of 0.5 percentage points to 10.9% and an increase of 67.8% to 0.32 yuan per share in basic earnings.

The company announced an interim dividend of 9.63 cents per share.

In the first half of the year, raw material and manpower did not increase substantially, and the gross margin of the company remained at a high level of 48.4%, which was basically flat compared with 48.7% last year. During the period, the company could maintain a stable gross profit margin, which mainly benefited from effective cost management, alleviating the pressure on labor, materials and related costs from the aspects of internal operational efficiency and supply chain management.

The average turnover period of the company was reduced from 71 days to 61 days, the average turnover period of receivable trade was reduced from 55 days to 47 days, and the average turnover period of payable trade increased from 69 to 71 days, indicating that the operating efficiency of the company continued to increase.

During the period, there were 6393 retail outlets, a net increase of 717 or 12.6%, and Lining stores reached 5853, with a net increase of 620 or 11.8%.

Among them, the franchise retail outlets increased from 14.2% at the end of 07 to 6056 at the end of 5301, while the number of direct retail outlets decreased from 10.1% to 337 in 357.

The number of newly opened shops in the two or three tier cities accounted for 57.3% of the total number of new shops opened during the period.

During the period, the percentage of companies selling to franchisees increased from 79% in the same period last year to 84.5%, and the direct sale of retail outlets and special counters decreased from 18.1% to 12.5%.

Changes in the number of stores and sales indicate that the focus of the company is further biased towards franchising, which helps to manage the concentration of resources.

　　經(jīng)銷及行政費(fèi)用率降低

During the period, the company's distribution cost was 898 million yuan, accounting for 29.4% of the company's revenue, up 0.8 percentage points from 28.6% in the same period last year.

The increase in distribution costs is mainly due to continuous growth in advertising, sponsorship and shop decoration, as well as pportation and logistics expenses.

The company's administrative expenses amounted to 191 million yuan, accounting for 6.2% of the total revenue of the company, representing a decrease of 1.6 percentage points from 7.8% in the same period last year, which mainly benefited from the scale effect of the company's business expansion.

The company's distribution and administrative expenses decreased from 36.4% in the same period last year to 35.6%.

　　與Lotto品牌合作惹關(guān)注

At the end of July, Lining and Lotto Sport entered into a concession agreement. In the next 20 years, Lining will get the exclusive license to use Lotto trademark in China for the development, manufacture, marketing, publicity, promotion, distribution and sale of licensed products with a minimum of 934 million yuan.

Considering that the concession price is as high as 934 million yuan, and the company will further invest in the establishment of relevant channels, we believe that the cooperation with the Lotto brand can bring notable performance gains while dispersing the company's management resources, which deserves further attention.

Maintain the company's overweight rating with a target price of HK $21.50 ($19.5 yesterday).

We expect the company's revenue and net profit will increase by 55% and 58.02% to 6 billion 730 million yuan and 750 million yuan respectively in the 08 years, and the current share price of the company is equal to 08 times the expected price earnings ratio of 08 times.

We give the company a buy rating and a target price of HK $21.5 in the future, equivalent to 26 times the expected price earnings ratio in 08.