Li Ning Co. slumped in Hong Kong trading to its lowest close in more than two years after China’s largest sportswear maker said it expects first-half sales and profit margin to decline.
The shares fell 16 percent to HK$11.54 at the 4 p.m. close in Hong Kong, the lowest since March 17, 2009. The company was the worst performer in the MSCI AC Asia Pacific Index.
Li Ning said its profit margin and sales in the six months ended June 30 may have declined as competition intensified and costs increased. First-half sales are expected to fall 5 percent, and the margin of profit attributable to equity holders may narrow to as low as 6 percent from about 13 percent a year earlier, the company said in a statement today.
“The expected margin is a lot worse than expected and expenses are much higher,” said Forrest Chan, a Hong Kong-based senior research analyst at CCB International Holding Ltd. He has an “underperform” rating on the company.
Two calls to Chief Executive Officer Zhang Zhiyong at Li Ning’s Shanghai office went unanswered.
The overall expense ratio will increase by 7 percentage points in the first half from 32 percent a year earlier, Li Ning said in the statement.
Li Ning, founded by the former Olympic gymnast of the same name, said March 16 income growth in China “has not quite translated into a sustainable increase in purchasing power for sporting goods.”
Chinese competitors also followed Li Ning’s decline today. Anta Sports Products Ltd. dropped 5.4 percent, the most in seven months, to HK$13.58. Peak Sport Products Ltd. declined for a second to HK$5.38 and 361 Degrees International Ltd. fell 4.4 percent to HK$4.62. The Hang Seng Index rose 0.1 percent today.
Price-to-earnings ratios for the companies have fallen because some investors are skeptical about the sustainability of their growth, said Sarah Xing, a Hong Kong-based analyst at BNP Paribas.
“There’s definitely problems within the industry,” said Xing, who has a “hold” rating on both Li Ning and Anta Sports.
Anta’s sales volume for athletic footwear grew 9 percent in the first quarter and the number of stores reached 7,625 at the end of March, the company said in a May 13 statement.