It has been a big news month for China’s top two sportswear brands, Li Ning and Anta, each of which announced endorsement deals with NBA headliners, the number two pick in the draft Evan Turner and Boston Celtics star Kevin Garnett. But the small news item that caught my eye was the mid-year report this week from a third Chinese sportwear label, Xtep International Holdings: revenues and profits up 22%.
Then I looked at the Hong Kong-listed company’s stock price, with mild professional trepidation as I had singled out the company for an optimistic appraisal in Forbes Asia 16 months ago, interviewing the supremely confident founder Ding Shuipo. I need not have worried. The stock had spiked 140% since I met Ding, and is trading six times higher than at its financial crisis nadir at the end of October 2008, making the company worth $1.7 billion on paper, or 18 times earnings. That makes it look cheap by comparison to its two leading competitors, whose shares have also surged. Anta, for example, is trading more than seven times higher than its darkest day in that October. Investors are valuing it at $5 billion, or 27 times earnings.
What does this tell us? Investors have been betting hard, and correctly, on the China consumer story, especially the retail story, and even more especially the second-tier and third-tier markets story. That has paid off absurdly well so far, so well that some investors have been selling off a little lately to take profits, or maybe because they fear this can’t go on forever.
After all, for Xtep growth has actually slowed down to 22%. That was about the same as the company’s performance in 2009 (and in line with Ding’s predictions), but Xtep’s revenues and profits had well more than doubled in 2008, while the company mustered a modestly priced IPO at HK$4.05 ($.52 USD), and a panicky market battered the stock down to a pittance of less than one Hong Kong dollar on Oct. 29, 2008. It closed Friday at HK$6.02.
When I talked to Ding in the early spring of 2009, his stock was still trading far below its IPO price, but he was ebullient about opening hundreds more stores in China’s less-developed markets: “I absolutely believe that second- and third-tier cities are the power of China,” he said. “In Hunan our brand is number one, even surpassing Nike and Adidas.”
Indeed, though those foreign labels still sell well in China, they are losing ground to China’s homegrown competition. Ding is himself from a lower-tier town in Fujian Province, where 23 years ago he started making and selling shoes as a teenagers with, he says, just $100 in capital.
Now Ding is sponsoring an English Premier League club, Birmingham City, outfitting their players in sportswear made in China (nothing new about that) but now with a Chinese name. That plays well in soccer-loving China, as do Li Ning and Anta’s signing of NBA stars in a nation where more fans watch the games than do Americans.
All of these moves may make international headlines but they are aimed at the domestic market, which is profitably deep, and growing both in the interior and on-line with China’s Ebay, Taobao.com, leading the way. There is plenty of talk about China’s brands going global. And these companies plan to do that — Xtep plans to expand in the Middle East, Africa and other developing markets. But right now China’s sportswear brands are making their money right at home.
