I Can Play

Date: Mon, 12 Jul 2010 11:35:19 +0800
Subject: I Can Play


The World Cup is over as the Dutch hang up their wooden sports shoes and Spain goes nuts. I bet more Chinese than ever before watched the show in S. Africa. Interest in sports, as a fashion – not actually working up a sweat, is on the rise hand in hand with urbanization which is why we like Peak Sports (1968 HK).

The pair trade is to short Li Ning (2331), which we downgraded a week ago and buy Peak (see note attached).

We like Peak because:

  • The stock is cheap at 9X 2011 PER with 26% EPS growth
  • Peak has underperformed the market 17.5% in the last three weeks on fears they would use their cash pile to buy a distributor – a move they announced Friday evening they will not make. The overhang on the stock is gone
  •  We don’t see inventory building as “sell-in” (Peak to distributors) and “sell-thru” (distributors to public) roughly match at 30% + y-y growth
  • Peak is on track to meet this year’s new store target of 1,000. They currently have 6,768 stores

We don’t like Li Ning because:

  • Expensive at 19X PER 2011, with 14% EPS growth
  • Recent rebranding exercise seeing as irrelevant
  • Mature brand with a saturated market that is now seeing Nike target them in their home base of 2nd-4th tier cities

If like me, you don’t live in China and don’t buy this stuff (not that there’s anything wrong with that) it may be hard to differentiate between the Li Nings, Peaks, Antas, Donxiangs, Xteps, etc. But if you take a look at their positioning in the market you can see Nike’s move into the hood is bad news for higher-end local brands, like Li Ning. Below is the average retail ASP for a pair of shoes:

Nike                 RMB 400

Adidas              RMB 400

Dongxiang         RMB 320

Li Ning             RMB 300

Peak                RMB 170

Li Ning’s new slogan; “Make the Change,” whatever. Peak’s is, “I can play,” which to me sounds a little more affirmative and encouraging and reminds me of the kids soccer league in the US, AYSO, whose motto is, “Everyone plays.” Maybe that’s why I played soccer as a kid for 6 years but got stuck as goalie for the whole time. Probably because I sucked.

Derek missing another one:

Peak is actively promoting its brand by dragging NBA stars Jason Kidd and Ron Artest to all ends of the country to sign shoes… Jason Kidd, I just found out, like Obama, had a black father and an Irish mother and was a 5 time Olympic gold medal winner, plus he’s the only player in NBA history with 15,000 points, 10,000 assists and 7,000 rebounds.

Anger management flunkee, Ron Artest, on the other hand is best known for his fan killing instincts (see below) and has recently tried to present a softer image to the public by promoting an animal spaying campaign for PETA (People for the Ethical Treatment of Animals) saying, “Have the balls to spay or neuter your dog.” If the Chinese fans are polite and very quiet, it should be a good campaign.

Love your fans


You can get our research by typing MASR <Go> on Bloomberg.


Derek Hillen, CAIA

Mirae Asset Securities: Risk is to the Upside

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