Xtep International Holdings Ltd, a mainland-based sportswear maker, outperformed its competitors Thursday after it reported strong growth in its sales order for the third quarter of 2011.
The good news factor allowed Xtep to remain flat at HK$5.30 a share while the competition fell in step with the general downtrend on the Hong Kong market.
Xtep announced that its sales order in the third quarter of 2011 registered 24 percent year-on-year growth in value terms, although no exact numbers were specified. Order volume for both footwear and apparel products recorded double-digit growth, it said. The average selling price (ASP) of apparel recorded double-digit growth, while the ASP for footwear posted single-digit growth, the company added.
The share prices of various mainland-based sportswear makers tumbled by as much as 6 percent on Thursday as the market remains concerned about the continued lackluster business performance of major sportswear makers due to intense competition in the mainland's first-tier cities.
Financial analysts said that those companies with the potential to find a niche for themselves in second-tier cities would be more likely to succeed given that there is market saturation in existing markets.
Li Ning, the leading sportswear maker on the mainland, fell 6.1 percent to HK$14.06 per share. The share prices of other sportswear makers also took a step back Thursday, as China Dongxiang Group dipped 5.4 percent to HK$3.12, 361 Degrees decreased 3.6 percent to HK$5.30, Peak Sports Products slipped 4.5 percent to HK$4.87, and Anta Sports Products was down 2.5 percent to HK$11.74.
The only exception was Xtep International Holdings as Thursday's announcement confirmed to the market that its prospects for penetrating second-tier cities are good - as well as being an engine of future profit growth.
"For companies like China Dongxiang and Li Ning, the strategy of opening more stores will not bring in profits and even crimp their profit margins because of the stiff market competition in first-tier cities," said Dickie Wong, research manager at Kingston Securities. "As the market perception has changed, the share prices of the above-mentioned sportswear makers will remain volatile."
"Peak Sports Products and Xtep International Holdings can fare better because they possess certain market niches - Peak Sports is specializing in basketball footwear production while Xtep is focusing on leisure clothes," Wong added.
A BOCOM International research report published on Thursday said that factors including low urbanization rates in second and third-tier cities, increases in the minimum wage and the potential reform of the current income tax assessment methods, are all favorable to mass market sportswear brands such as Xtep.
Credit Suisse also expects sportswear brands that focus on the mainland's second and third-tier cities to perform better. And they expect share prices to reflect this. The Swiss investment bank rated Anta Sports Products as "outperform" in a global equities research report published in January.
The business performance figures of sportswear brands focusing on the mainland's second and third-tier cities have fared better. Xtep rival 361 Degrees announced in December that its business orders for the third quarter of 2011 jumped 23 percent year-on-year in value terms, thanks to increased volume and higher average selling prices.
However, China Dongxiang said in November that its business orders received for the second quarter of 2011 grew just 2.8 percent - far below the industry average as well as market expectations. Meanwhile, Li Ning reported in January that its same-store sales in 2010 grew just 3.9 percent, numbers which the market found disappointing as well.
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