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By Pehon | August 7, 2007
Extracted from China Hong Xing’s 1H2007 press release.
- Turnover rose 42.6% to RMB898.9 million driven by an extensive advertising
promotion campaign and sponsorships
- Gross profit margin improved from 33.8% in 1HFY06 to 42.0% in 1HFY07 due to
higher selling prices, change in product mix and greater economies of scale
- Net profit climbed 110.3% to RMB168.8 million on the back of higher turnover
Singapore,Singapore, 6 August 2007 – China Hongxing Sports Limited (“China Hongxing” or “the Group”), one of the leading sporting goods companies in the PRC, today announced a sterling set of results for the first half ended 30 June, 2007 (“1HFY07”). Group turnover rose by 42.6% from RMB630.4 million in 1HFY06 to RMB898.9 million in 1HFY07, while net profit jumped 110.3% to RMB168.8 million over the same period.
The Group’s strong results in 1HFY07 were mainly attributed to its relentless efforts to boost the Erke brand visibility and recognition through extensive advertising and promotional activities. Its brand was ranked 159 in “The 4th China’s 500 Most Valuable Brands in 2007” conducted by the World Brand Laboratory with an estimated brand equity of RMB4.04 billion, a jump from the ranking of 188 and a brand equity of RMB3.29 billion a year ago. Its more prominent brand status has translated to higher turnover as demand for its products increased across the board, which along with business expansion, higher selling prices and greater economies of scale with expanded production capacities, the growth at the top line also filtered through to improved earnings at the bottom line.
Mr Wu Rongguang ( ), Chairman and Executive Director of China Hongxing, said, “We are very encouraged by the excellent set of results in 1HFY07. We will continue to improve our brand visibility and expand our network to capitalise on the growth of the economy and the sporting goods industry in the PRC. We have established another 390 retail stores in the first half, bringing our total number of stores to over 3,000 in June 2007. Our network expansion is on track and coupled with our continued advertising and promotion efforts, we believe these will translate into stronger sales for all our product segments.”
Performance Review
In 1HFY07, the Group’s turnover rose to RMB898.9 million as compared to RMB630.4 in 1HFY06. The 42.6% jump was mainly attributed to its enhanced brand image and visibility resulting from the Group’s extensive advertising and promotioncampaigns and notable sponsorships, its broadened product range and the aggressive expansion of its sales and distribution network.
For the period under review, sales of sports footwear rose 27.0% from RMB484.7 million in 1HFY06 to RMB615.7 million in 1HFY07, accounting for 68.5% of total turnover for 1HFY07. Turnover from sports apparel surged 105.9%, from RMB116.9 million in 1HFY06 to RMB 240.7 million in 1HFY07, contributing approximately 26.8% to total turnover for this period. Sale of
accessories, which accounted for 4.7% of total turnover, increased by 47.6% to RMB42.5 million. The shift in product mix, where sports footwear used to account for 76.9% of our revenue in 1HFY06, is in line with our strategy to increase contribution from the higher-margin apparel and accessories product segments.
In line with the increase in turnover, gross profit for the period rose 77.4% to RMB377.9 million, from 1HFY06’s RMB213.1 million. This is a result of greater cost efficiencies and improved selling prices of its products. Gross profit margin climbed 8.2% points year on year, improving from 33.8% in 1HFY06 to 42.0% in 1HFY07.
Due to increased advertising and promotional activities as well as securing notable sponsorships, selling and distribution costs rose in tandem to RMB155.4 million in 1HFY07 from RMB108.8 million in the previous corresponding period. This is in line with the Group’s overall strategic direction to raise public awareness of its Erke brand through greater engagements in advertising and promotional activities. As a percentage to sales, advertising and promotion cost accounted for 16.7% or approximately RMB150.0 million for the first half of FY07. Administrative expenses, accounting for approximately 3.6% of sales, soared 149.8% to RMB32.0 million due mainly to higher operating costs with the commencement of the Group’s new manufacturing facilities and the increase in salaries and staff-related expenses, traveling expenses and professional expenses. Overall, operating expenses increased by 54.1% to RMB187.4 million in 1HFY07. Finance cost increased to RMB13.0 million in 1HFY07, mainly due to the amortisation of interest for the RCPS Issue which amounted to RMB12.8 million.
With an effective tax rate of 8.2% in the first half, the Group’s net profit grew 110.3%, or approximately RMB88.6 million from RMB80.3 million in 1HFY06 to RMB168.8 million in 1HFY07.
Earnings per share on a fully diluted basis stood at RMB7.57 cents, an increase of RMB3.56 cents from RMB4.01 cents in 1HFY06. As at 30 June 2007, the Group has cash and cash equivalents of approximately RMB415.5 million.
Outlook
With the continued development of the PRC economy, coupled with the growing opportunities brought on by the upcoming 2008 Beijing Olympic Games, the Group remains positive on its business outlook and will continue to place emphasis on strengthening its brand positioning and sales network in the PRC.
The Group plans to accelerate the expansion of its sales and distribution network, aiming to open 600 stores each year in 2007 and 2008.
Since the beginning of the year, the Group has expanded its annual production capacity to 17.9 million pairs of sports footwear. Since the commencement of the new plant in March 2007, operations have been smooth and the Group will continue to increase its capacity utilisation rates at the new plants to meet the expected increase in demand as well as to reduce its reliance on subcontractors.
In June 2007, the Group held its second Autumn/Winter collection trade fair in Nancheng City, Jiangxi Province. The event was another great success, which saw close to 1,400 distributors and retailers from all over PRC streaming in to participate. The Group launched approximately 150 new footwear designs and close to 200 new apparel designs, in addition to the
Autumn/Winter collection launched during the March 2007 trade fair. The Group received overwhelming responses and its order book remains strong.
“We are excited about the new opportunities that will surface as the 2008 Olympic Games draw nearer. For the rest of the year, top priority will be to ensure the successful expansion of our network. We will also seek to augment our range of sports footwear with new designs and technologies such as the anti-bacterial and ultra violet technologies. At the same time, we will
continue to grow our margins by expanding our range and designs of sports apparel and sports accessories, on top of increasing stores sizes and establishing new specialty stores to boost our brand image and spur further growth. In addition, we are in the midst of securing more sponsorship deals and thus hope to gain a stronger foothold in the PRC sporting goods market,” said Mr Wu.
Baring unforeseen circumstances, the Group is optimistic about its business outlook for the coming financial year.
Do check back in a few days time for my review on the company’s performance!
Topics: ChinaHongXing |
Comments
August 11th, 2007 at 4:48 pm
vested up up and away pls