Max Hu presented his in-depth investment thesis on Li Ning (Hong Kong: 2331) at Asian Investing Summit 2014.

Li Ning: Turnaround opportunity in the leading Chinese sportswear company, a fallen angel: share price declined from HKD30 in 2010 to HKD5 currently. Founded by former high profile Chinese Olympic gymnast in 1990; public since 2004. Large shareholders include Mr. Li (Viva China Holdings, 30.5%) and TPG Asia Advisors (18%). Competitive environment is tough, but not hopeless: Li Ning is still the most recognized domestic brand in China and focuses on competing in mid-end markets against Anta (Hong Kong: 2020), with some limited editions to compete against Adidas and Nike at the high end. Overly ambitious expansion (stores increased from 2,644 in 2004 to 8,255 in 2011) caused huge inventory problems. Today, Li Ning operates ~35% of stores with ~65% operated by third parties. With TPG taking control, Li Ning announced in 2012 its three steps, four years turnaround plan: 1) re-focus on its core sportswear products, exiting causal wear business; 2) regain control of sales channel and shorten the product cycles; 3) improve consumer experiences, including building an online presence. Current valuation at P/S of 0.9x assumes some success in turning around margins, but remains low relative to a full turnaround and sustained growth prospects.

About the instructor:

Max Hu is the founder and portfolio manager of Tempus Capital Limited, a Hong Kong based investment firm. Max’s investment approach is contrarian, value-driven and focused. His investments have been focused on easy to understand, wide-moat businesses with solid long-term growth prospects. He has worked at Deutsche Asset Management and is a CFA Charterholder. Max graduated from Tsinghua University in China, with a degree in physics and mathematics. He has done PhD research in Financial Economics at ETH Zurich and holds a Masters’ degree from University Heidelberg.

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