Lining's Periodic China Burning, "Feelings, How Should I Set A Price For You?"

In August 14th, Lining (02331-HK) convened the mid term results conference in 2019, and the net profit of the company grew by 196% to 795 million yuan over the same period. But it seems difficult to perturb the heart of the professional athlete Lining, chairman and deputy chief executive of the company. He was calm and calm throughout the conference. (Note: in order to avoid confusion, the author of the Li Ning Co will be called "Lining himself".

Since Lining's debut in Paris fashion week in 2018, it has ignited the trend of domestic sports products. Meanwhile, Lining's performance and share price growth have been ignited in the same period. So far, the Hang Seng Index has been in a doldrums for about a year now. Lining's domestic rivals, Anta (02020-HK) and XTEP (01368-HK), have repeatedly searched for the international brands for many times, but the stock price of each company is weaker.

Lining is a domestic sports brand with nearly 30 years of history. It was founded by Lining, a gymnast prince, and was listed on the Hong Kong Stock Exchange in 2004. After many ups and downs, the old brand of domestic sports has regained its youth and won the favor of the young people with the tide.

In fact, this is not Lining's first focus on the young market. In 2011, Lining adjusted his business strategy to target the young post-90s group in China. Later, it turned out that this was a failed transformation, and the company's performance was in the mire of losses for three consecutive years from 2012 to 2014. After many years, when the company again takes the young market as its main force, why can it achieve double recognition of performance and capital market?

Is it Lining or the market?

The development of domestic sports industry boosts Lining's turnaround

It should be noted that in 2014, the State Council issued several opinions on accelerating the development of sports industry to promote sports consumption, which pointed out that by 2025, the domestic fitness and leisure industry should reach the total size of 3 trillion yuan RMB, which is equivalent to 5% of that of 2014 China's GDP.

In 2015, the confused Lining chose to return to his original heart. In his interview with Phoenix network, Lining himself used the old slogan of the company, Lining, "everything is possible" as the concluding remarks. This sentence was also written into the company's financial report of that year, and in the earnings announcement, when the Lining was founded 25th anniversary, the company returned to the brand tradition DNA, "everything is possible".

At this point, Lining also ended the three consecutive years of loss. In 2015, the net profit of the company realized a net profit of 14 million 310 thousand yuan, which at the same time became the turning point of the company's performance. In 2016, the net profit of the company jumped to 643 million yuan, and in the following years, it gradually realized the change from stable profit to profit growth.

In the same period, the domestic sports industry also welcomed the speed of development. According to Wind data, the total output of the national sports industry increased from 1 trillion and 700 billion yuan in 2015 to 22 thousand yuan in 2017, and the annual compound growth rate reached 13.4%. In the same period, the compound growth rate of GDP in China was only 9.4%.

If Lining reclaims that "everything is possible" is the choice of pragmatism, the revitalization of the domestic sports industry will provide the most powerful support for achieving profitability.

Lining's China burning

In recent years, the domestic sportswear brand wants to get rid of the low-end brand image. Anta and XTEP have finished the high-end layout of the product line through the acquisition of the international sports brand, which has attracted the attention of the market. And Lining's high-end line is just as simple and direct as Lining's athlete's heart - to make himself high-end.

Lining's brilliance in New York and Paris fashion week is not just avant-garde fashion design, but the two words "China" appear in the position of brand LOGO in simple form and exaggerated character size. Lining was endowed with Chinese soul and became "China Lining".

It may be a joke to talk about technology in the technology industry, but in apparel industry, it is a guarantee of high premium.

According to the first half of 2019, the gross profit margin of sales reached 49.7%, which is the highest value since 2006 and the second high gross profit margin since Lining landed on the Hongkong stock exchange.

Did Lining choose China or did China choose Lining?

Now it is easy to answer this question. In the top three list of China's top sports apparel brands (as of August 14, 2019 closing, Anta sports market value was HK $156 billion 900 million, Lining 45 billion 800 million Hong Kong dollars, XTEP International HK $12 billion 600 million), Lining was not only the earliest and the only company founded by professional athletes. Not to mention Lining himself is the legend of world sports.

In his sixth World Cup Gymnastics Competition in 1982, Lining himself won 6 of the 7 gold medals in the men's group. He won 3 titles in the 1984 men's gymnastics competition. He has won over 100 gold medals in his sports career and won 14 World Championships for China.

In this era of self-reliance of Chinese goods, if it is necessary to choose the only Chinese label from the local sportswear brands, Lining is naturally willing to do so.

Also, more than 30 years ago, the country needed Lining himself. Now China needs Lining too.

Feelings, how should I set a price for you?

Yan Yan, chief partner of Softbank investment fund, has made public statements in public. His valuation is zero. He only talks about feelings when he drinks. Although what he refers to may be more in the technology industry, it also presents an embarrassing reality in the VC world.

Comparing the price earnings ratio of Lining, Anta and XTEP's three Hong Kong stock listed companies, we can see that Lining has been far ahead of the other two.

At this time, we reconsider the question at the beginning of the article. Why is Lining, who is also focusing on the demand of young people's sports fashion, failed in the strategic transformation in 2011? Naturally, there is Lining's understanding of sports fashion and the internal cause of the company's comprehensive operational efficiency. The change of external environment has created favorable conditions for Lining's rebirth.

The first one is inseparable from China's strong support for the sports industry. At present, whether from the perspective of national policy support, or considering the "people's yearning for a better life", the development of sports industry in China is long-term.

The second point is that the market's support for domestic products has to be cyclical. From the past international brand fever to the current "China Tide" is a cyclical performance. How far this cycle can go is influenced by changes in the international environment. The more decisive factor is the improvement of China's comprehensive strength. In any case, Lining's sports products can not be separated from professional functional consideration, which is the hard power to overcome the "emotional cycle".

Happily, in Lining's latest earnings report, its R & D expenditure rose from 61 million 630 thousand yuan in the first half of 2018 to 133 million yuan in the first half of 2019, an increase of 115.3% over the same period last year.

Perhaps the status quo is enough to make Lining comfortable, but if he wants to build on the long-term development of national brands, Lining needs to balance the focus of sports and fashion and make himself more professional before the cycle changes.