Li Ning buys Hong Kong building

The sportswear brand is paying $283 million for a North Point area building that will become headquarters for its non-Mainland operations

Key Takeaways:

  • Shares of Li Ning tumbled 14% after it announced its purchase of a Hong Kong building to become its headquarters outside Mainland China
  • The purchase will lay the groundwork for the sportswear maker’s overseas expansion, which it intends to officially launch in 2024.


Li Shih Ta

Chinese sportwear brand Li Ning Co. Ltd. (2331.HK) thought it had a slam dunk on Dec. 10 when it announced its HK$2.21 billion ($283 million) purchase of a property investment company whose main asset was a 22-story office building in Hong Kong’s North Point area. But investors didn’t quite see it that way. The next day, Li Ning’s shares plunged 14.3%, wiping out around $1 billion in market value, to close at their lowest level in more than three years. 

Li Ning scored a major breakthrough five years ago when it became the first Chinese sportswear brand to launch its new products at New York Fashion Week in 2018. But it’s been mostly disappointment this year for the company that takes its name from one of China’s most famous Olympic gold medalists. 

In October, Li Ning’s shares fell 20.7% the day after it published disappointing third-quarter results. The stock has now tumbled from about HK$65 at the start of the year to its Monday close of HK$18.64, a drop of more than 70%, wiping out billions of dollars in market value. Its price-to-earnings (P/E) ratio has sagged to just 11 times in that process, less than half the 23 times for its biggest rival Anta (2020.HK).

The latest sell-off may reflect investor concerns that a company rapidly losing its touch with consumers spent such a princely sum on a building in a sluggish Hong Kong property market with little connection to its main business. Li Ning immediately announced a share buyback worth up to HK$3 billion, which helped to finally stabilize the stock.

Revenue up, profit down 

Li Ning’s performance has been anything but a champion since last year. Its revenue grew by 14.3%, in 2022, but its profit barely inched up by 1.3% to 4.06 billion yuan ($570 million). Things worsened in the first half of 2023 when its revenue grew by a similar 13% year-on-year to 14 billion yuan, but its profit actually fell 3.1% to 2.12 billion yuan. Things appear to be only getting worse, with sales growth slowing from the 10% to 20% range in the second quarter to the 5% to 7% range in the third.

By comparison, Anta‘s revenue grew by a similar 14.2% to 29.6 billion yuan in the first half of this year, but its profit surged 32.3% to 4.7 billion yuan. The smaller Xtep’s (1368.HK) profit grew 13% for the period, also outpacing Li Ning.

The fading popularity of Li Ning’s Chinese-style sportswear, known for its traditional cultural elements, and consumers’ increasing unwillingness to pay the premiums the company generally charges may explain why it’s rapidly losing momentum. The company took a hit last year when it got caught in a controversy over the Japanese look to some of its new clothing, and its Chinese-style has flagged in popularity since then. Since the end of the pandemic, it has been losing out in particular to some smaller outdoors brands. 

Worse still, its higher-end products are facing increasing difficulty finding an audience. As that happens, the company has had to lower prices to clear out inventory. Even so, its average inventory turnover rose to 57 days in the first half of this year, from 55 days a year earlier.

Overseas expansion

As the popularity of its Chinese style ebbs, the company is hoping to regain some momentum by turning to foreign markets. That campaign was the driving force behind its purchase of the 9,600-square-foot Hong Kong building that also includes two floors of retail space. 

Li Ning has relatively little experience in property ownership and management. Its property business revenue totaled just HK$35 million in 2021 and HK$50 million in 2022, producing post-tax losses of HK$17 million and HK$80 million for those two years, respectively. In a report after the latest purchase, Morgan Stanley pointed out that Hong Kong property analysts believe the property will have a rental yield of about 3.2%, lower than the 5% yield for the equivalent amount of cash.

Li Ning said part of the property could be used as its Hong Kong headquarters, adding the purchase reflects its confidence in the future of its Hong Kong business and also shows its determination to develop its international business.

In that regard, Li Ning’s decision to set up a Hong Kong headquarters can be seen as an important signal on the company’s international expansion. It opened a Hong Kong store in 2022, and has said that overseas expansion is part of its business plan. 

Li Ning is expected to start the expansion next year, aiming to raise its awareness among overseas consumers through brand management targeted at foreigners. It hopes that will lay the foundation for a broader overseas market expansion in the future that can become a new growth engine.

Despite such lofty aspirations, Li Ning still does the vast majority of its business in its home market on the Chinese Mainland. Of its 13.7 billion yuan in revenue in the first half of the year, the Chinese market accounted for 97.9% of the total, while overseas revenue was negligible.

The Hong Kong building purchase represents Li Ning’s first headquarters outside the Mainland. It will be able to use the city’s more globally-focused resources and connections to tap into international market resources, and to better understand and adapt to the changing needs of different markets to help drive its global expansion.

Li Ning has made previous attempts at international expansion, though none went very far. The Hong Kong move seems to represent a fresh new start, and the size of the investment shows Li Ning may be more serious this time. While its Chinese style is flagging at home, it’s always possible Li Ning may find an audience for the look overseas by using compelling storytelling and focusing more on product innovation. That could ultimately help it to stand out from its competitors, at least on the global stage. 

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