What’s on the table
China Sports International (S$1.72) – Initiating coverage - Warming up
We initiate coverage of this Chinese sport shoe company with an Outperform rating and target price of S$2.43 on 15x CY09 earnings, which represents a 40% discount to average valuations for Chinese sports-shoe peers. We believe the discount is warranted by its weaker brand name and lower margins than peers.
However, we recommend China Sports for cheaper exposure to China’s burgeoning sporting goods sector. We expect group earnings to grow at 55% CAGR to Rmb272.4m by FY09.
We believe catalysts could come from:
1) an improved sales mix, boosted by higher-margin apparel sales;
2) accelerated store rollout;
3) higher ASPs, thus higher margins; and
4) strengthened brand awareness, boosted by aggressive A&P.
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