China Sports International 2008 Q2 result

It is interesting to evaluate other sports player result also. Following is the China Sports International result for Q2.

Revenue +50%
Cost of sales +49.9% (in sync with revenue)
Selling and distribution expense +281.5%
Administrative expense +387.3%
Profit before tax increased only 25.7% as a result of high expenses incurred. The group is probably trying to put resource to grow faster.
Group has no debt

Look at cashflow statement, profit before tax +25.7%
Net cash generated from operation 123,932k RMB.
Minimum cash used in investing and financing activities
Cash at end of period 535,293k RMB. Strong cash position would allow them to grow aggresively.
Q2 EPS number fall from 9.92cts to 8.7cts. But this should not be a cause of concern, since company is newly listed and this is calculated using pre-invitation shares.

Revenue increase is evident. The cash raised during IPO was put into work and allow faster growth. The widen distribution network also contribute to the significant increase of operating expenses. This is normal. The rise of average selling price is a good sign the brand is gaining traction. OEM business seems to be getting the margin squeeze. Building own brand is the way to go.

The group believe that the Beijing Olympic would raise the sports awareness and contribute to long term growth of sports sector. This might be true, but we are not sure whether there is olympics overhang. Since the group was doing OEM for Kappa, they are into the fashion sports segment currently. I once read few reports about the fashion sports niche which Kappa is doing really well. People treat sports shoe as part of the fashion. The group is focusing on this niche but is really a small player in this aspect, although story looks promising. The tie up with sohu and CCTV might further raise the brand awareness. In overall, the prospect looks bright, but bear in mind of their size.

Looking at current market condition, everything is cheap. Investor can afford to cherry pick good deal. Let's assume this quarter of EPS 8.7cts is consistent across all quarters – 34.8cts RMB. This translate to 7.15cts SGD. At today closing of 0.32, it selling at PE of 4.47 only! What a steal. However, keep in mind the current market sentiment, china share situation and the inflation environment, one might choose to go in or wait for a while.