China Sports - A low-end sports fashion brand

Company Overview — Despite management believing that there are still uncertainties on sportswear demand this year, China Sports targets to improve its profit margin in 2010/2011 on a change of revenue mix and lower effective tax rate. China Sports has net-cash of Rmb679m (S$143m), representing 111% of market cap. It trades on 4x 2010 PER, with 16% earnings growth in 2010, based on consensus estimates.

Business Strategy — Retail network expansion. Brand building through advertising and celebrity endorsement. Expand products offering and increase in-house production.

Industry Overview — China sportswear market has doubled to Rmb41bn from 2003-07, according to Euromonitior.

Competitive Analysis — The sportswear market in China is largely dominated by a few international brands and national domestic brands. The key competitors of China Sports are ERATAT, Doublestar, Aokang, etc.

Recent Results — 1Q09 earnings were up only 7% to Rmb50 despite revenue being up 32% yoy. No dividend was declared for 1Q09. China Sports does not have a fixed policy on dividend. In FY08, payout was only 10%.

Strengths — Large distribution network in China. Good recognition of its core Yeli brand in the low-end segment. Strong balance sheet.

Weaknesses — The sportswear market in China is competitive and distributors are bargaining for more support. Sportswear goods are sensitive to the economic cycle.

Sponsored Links