Peak Sport gets game on

Ron Artest with the Los Angeles Lakers appears at a press conference in Beijing, as part of the 2009 Peak NBA Players China Tour. Photo: CFP

By Chen Yang

Quanzhou-based Peak Sport Products, the Chinese sportswear maker and distributor that sponsors the National Basketball Association (NBA) and seven individual players, such as Sonny Weems, Darnell Jackson and Ron Artest, listed on the Hong Kong Stock Exchange today with its initial public offering (IPO) price at HK$4.1 ($0.53) per share.

Peak is the sixth Chinese sportswear company listed in Hong Kong and is expected to raise HK$1.9 billion ($222 million) in its IPO, 14 percent more than originally projected. The offering of 420 million new shares, including 70 percent for an international placing and 30 percent for a Hong Kong public offer, represents 20 percent of the company's stakes, the company said in an announcement Monday.

The company will use half of the capital raised for advertising and brand promotion. The remainder will be used to boost apparel and footwear production and expand its sales network, said the prospectus.

The IPO will also increase Xu's family fortune to 5.2 billion yuan ($761 million).

"It is easier and faster to be listed in Hong Kong due to lower access barriers, and a listing in Hong Kong also helps companies attract international talents and expand the worldwide influence," Ni Zhongsen, chairman of Hengrun International, a Quanzhou-based financial consulting company, told the Global Times. "Once the company goes public, family management should be developed into modern management. The first step is sorting out property rights."

The company's net profit is expected to surpass HK$682 million ($ 88 million) this year, according to CEO Xu Zhihua.

But investors should be cautious about buying shares in Peak, Li Zhun, an analyst at Guotai Junan Securities (Hong Kong), said in a research report.

Peak's business model is similar to that of Anta Sports Products, a Quanzhou-based sportswear company that was listed in Hong Kong in 2007. Peak's profit growth rate is higher than Anta's largely due to rapid expansion. If the expansion begins to slow down, Peak should concentrate on the profitability of its existing stores for the long term, Li advised.

International sponsorship

Peak traces its roots back to a business set up by 53-year-old Xu Jingnan in 1988. After a deal to produce products for Nike fell through, Xu founded Peak Sport in 1989 and concentrated on manufacturing basketball shoes.

Peak sponsored the national basketball teams of Greece and Uzbekistan in 2004 and signed a $4 million agreement with the Houston Rockets that Yao Ming joined in December 2005, becoming the first Chinese sports brand in the NBA. During the Beijing 2008 Olympic Games, it sponsored the delegations of Iraq, Cyprus and Lebanon.

"Sponsoring international games, teams and players cost us about $30 million, but help Peak Sport build brand awareness and expand its business in China," Xu Zhihua said at a press conference promoting the IPO.

Peak had 5,667 stores, 95 percent of them in smaller Chinese cities, by the end of June, said a report issued by Credit Suisse, which is the lead underwriter of the offering.

"The financial crisis gives us opportunities to enlarge the market in first-tier cities such as Beijing and Shanghai, and we plan to open 1,000 more stores this year and set up a global research center in the US," said Xu.

International sportswear giants Nike and Adidas occupy 15.2 percent and 13.6 percent of China's sportswear market, followed by Chinese brand Li-Ning and Anta, which occupies 9.5 percent and 6.9 percent respectively. Peak currently only has 2.7 percent of the market, according to ZOU Marketing, a Shanghai-based provider of sports branding services.

It also estimated that China's sportswear market is expected to expand at an annual average of 18 percent to 149.1 billion yuan ($22 billion) by 2013.

Peak will strengthen its basketball footwear business and expand to other sports fields, said Xu.

Quanzhou's business model

Peak Sport is the latest Quanzhou-based company to go public, bringing the number of Quanzhou-based listed companies to nearly 40. Together they brought more than one billion yuan ($147 million) in tax income to the state coffers in the first eight months of this year.

Quanzhou, located in Fujian Province with a population of 7.62 million, has about 800 private companies each with assets of over 100 million yuan ($14.7 million). Peak's move to a Hong Kong listing has also encouraged more private companies to find opportunities in the capital market.

"More than 10 Quanzhou-based companies will be listed on the Hong Kong or overseas stock markets by the end of this year, and the total financing would amount to over 10 billion yuan ($1.47 billion) this year," said Lu Yongbo, director of the Quanzhou City Listing Office.

He said more than 100 footwear companies in Quanzhou such as Qiaodan Sports have plans to go public.

"The financial crisis cooled down some companies' enthusiasm for IPOs last year, but listed companies' business achievements put pressure on unlisted companies. With abundant capital they could open more stores and launch more advertisements," Hengrun International's Ni said.

Ni helped Anta Sports plan an IPO in Hong Kong in 2007. The company's stores grew from 4,000 to 6,000, and it is in the process of acquiring Italian sports brand Fila from Belle International. Its net profit reached 608 million yuan ($89 million), a 40.1 percent increase year-on-year.

"Going public is an important approach for private companies to raise money and expand their business. However, public companies also face problems such as increased operating costs and a demand for high return on equity," said Ni.

Explore the World, Understand China!
Please log on www.gloaltimes.cn