Li Ning, the Chinese sportswear maker, has experienced a sharp decline in shares after announcing its plan to acquire the East Harbour tower in Hong Kong for HK$2.21 billion (US$283 million).
As of the mid-day break, the stock had dropped 14% to HK$18.44, resulting in year-to-date losses of 73%.
Li Ning stated on Sunday that the office building, which includes 22 floors of office space and two floors of retail areas, would be utilized as its local headquarters. However, investors are not optimistic about this capital investment.
According to Citi analysts Xiaopo Wei and Vincent Yang, “We believe that this property investment is a less optimal capital deployment than special dividends or share buybacks for shareholders’ value.” They are skeptical about the use of funds.
This decision follows Li Ning’s failure to meet third-quarter sales expectations and its subsequent reduction in guidance for the full year due to increased competition from international brands such as Nike and Adidas.
In the short term, the analysts anticipate more negative sentiments towards Li Ning and Chinese sports brands as a whole, especially as Nike and Adidas continue to gain market share. They believe that Li Ning will need to deliver consistently strong sales for two or three more quarters before alleviating most market concerns.
Citi maintains a buy rating on Li Ning shares with a HK$35.50 target price.
