Resignation of CFO hurts sentiment; fundamentals remain solid
Li Ning’s CFO, company secretary and executive director Mr Tan Wee Seng will
leave the company on 1 Dec 08. Although the news will hurt investors’ sentiment,
fundamentals remain solid. Maintain BUY.
Corporate Event
Li Ning announced that Mr Tan Wee Seng has submitted his resignation as CFO,
company secretary and executive director to the company to pursue his personal
career. The board of directors has accepted Mr Tan’s resignation which will take
effect on 1 Dec 08. Mr Tan will also cease to be the qualified accountant and
authorised representative of the company. Ms Lee Hung has been appointed as
the company secretary and the authorised representative with effect from 1 Dec
08. During the conference call, CEO Mr Zhang Zhiyong implied that the
company is looking for candidates both internally and externally for the new CFO.
Mr Tan said he has no disagreement with the board, and he resigns to pursue
his personal career.
Stock Impact
Mr Tan’s resignation should have some negative impact on investors’ sentiment.
Mr Tan is Li Ning’s CFO since Jan 03 (before the listing in Jun 04) and his
resignation may raise some concerns on the company’s credibility, as reflected
by a 10% drop in share price yesterday. Amid the turbulent market, the departure
of a CFO would temporarily affect investors’ confidence on the company.
However, we believe this would not substantially affect Li Ning’s operations and
management quality.
Sales momentum remained resilient beyond the Olympics, without a significant
pile-up of inventories and deep discounting at distributors. According to
management, the sales-to-inventory ratio for distributors averaged around 5.5x
(130 days inventory which is acceptable by industry standard), and the level for
Jul-Sep 08 was no longer. Distributors’ orders for 1Q09 grew 42% yoy, implying
strong retail sales ytd. If distributors are stuffed with inventories, they will not
order that much for the coming year. We maintain our forecast of a 33% net profit
CAGR for 2008-10 based on 16-20% same-store sales growth and an addition of
over 800 outlets per year.
Earnings Risks
The probable spread of rumours about Li Ning arising from the
Li Ning’s CFO, company secretary and executive director Mr Tan Wee Seng will
leave the company on 1 Dec 08. Although the news will hurt investors’ sentiment,
fundamentals remain solid. Maintain BUY.
Corporate Event
Li Ning announced that Mr Tan Wee Seng has submitted his resignation as CFO,
company secretary and executive director to the company to pursue his personal
career. The board of directors has accepted Mr Tan’s resignation which will take
effect on 1 Dec 08. Mr Tan will also cease to be the qualified accountant and
authorised representative of the company. Ms Lee Hung has been appointed as
the company secretary and the authorised representative with effect from 1 Dec
08. During the conference call, CEO Mr Zhang Zhiyong implied that the
company is looking for candidates both internally and externally for the new CFO.
Mr Tan said he has no disagreement with the board, and he resigns to pursue
his personal career.
Stock Impact
Mr Tan’s resignation should have some negative impact on investors’ sentiment.
Mr Tan is Li Ning’s CFO since Jan 03 (before the listing in Jun 04) and his
resignation may raise some concerns on the company’s credibility, as reflected
by a 10% drop in share price yesterday. Amid the turbulent market, the departure
of a CFO would temporarily affect investors’ confidence on the company.
However, we believe this would not substantially affect Li Ning’s operations and
management quality.
Sales momentum remained resilient beyond the Olympics, without a significant
pile-up of inventories and deep discounting at distributors. According to
management, the sales-to-inventory ratio for distributors averaged around 5.5x
(130 days inventory which is acceptable by industry standard), and the level for
Jul-Sep 08 was no longer. Distributors’ orders for 1Q09 grew 42% yoy, implying
strong retail sales ytd. If distributors are stuffed with inventories, they will not
order that much for the coming year. We maintain our forecast of a 33% net profit
CAGR for 2008-10 based on 16-20% same-store sales growth and an addition of
over 800 outlets per year.
Earnings Risks
The probable spread of rumours about Li Ning arising from the
