Singapore-listed mainland firm China Hongxing Sports can’t be faulted for boldnesswhen it comes to its athletic endorsements.
Unable to compete with Nike or Adidas in signing up star athletes ahead of this summer’s Olympics, China Hongxing decided to sponsor North Korea’s team. It provides Erke-brand footwear, apparel and accessories to the country’s gymnasts, ping-pong players and footballers, among other sports.
Chief executive Denis Wu says his company began thinking of Olympics sponsorship opportunities two years ago only to find that the top athletes and teams already had backers. There was only one choice left.
“North Korea was the only good country that wasn’t taken,” he said.
China Hongxing has solid financials to underpin its creative approach. According to a research note by DBS Vickers, the company delivered better-than-expected first quarter net earnings of US$16 million, up 45% year-on-year. During this period, China Hongxing increased its number of distribution outlets from 2,750 to 3,440.
“We continue to like China Hongxing as a China consumption growth story, especially given its position as a fast-growing, top-five domestic brand in the PRC’s booming sporting goods sector,” the research note said.
The company listed on the Singapore Exchange’s main board in November 2005, raising US$35 million in its initial public offering. It is now one of the most popular companies on the exchange, with an average daily trade value of US$15 million, according to Wu.
China Hongxing makes most of its money selling sports shoes. Its major market is China – which is what the North Korean sponsorship is supposed to stimulate – although it is expanding abroad. It has annual sales of US$1 million in Singapore, and Wu says Erke is in the top three sports brands by sales volume in the Middle East.
But China Hongxing is still a small player by most standards. Its market cap of around US$1.2 billion is less than half that of local rival Li Ning. A global giant like Adidas has a US$14 billion market cap. China Hongxing’s boss remains aware of that reality.
“The Olympics is an opportunity for a Chinese company like us but the expense has to be within our budget,” he said. “Adidas has spent over RMB1 billion (US$145 million) on sponsorship, which is way too much for a small- to medium-sized company like us.”