August 25 - China home grown sport brand Li Ning Co Ltd., which posted a 50 percent fall in its first half profit, said the operating environment is expected to remain challenging on intensifying competition among brands and escalating cost.

Li Ning

"The ongoing intensification of competition in the sporting goods industry in China means that competition among various brands on sales channel, sports resources and media resources will heighten," chairman Li Ning said in a statement.

"In addition, each segment of the value chain of the industry will remain affected by cost escalations," Li added.

The company, founded by a famous Chinese athlete with the same name who is known as the Prince of Gymnastics in China, on Wednesday said its first half net profit fell 49.5 percent to 293.7 million yuan, matching analyst forecasts.

The sporting goods industry in China will continue to have double-digit growth in 2011 as China's economy transforms from one led by investment to one led by consumption, Li said.

The number of Li Ning brand retail stores reached 8,163 as of June 30, a net increase of 248 stores, the company said.

Li Ning, which sells everything from running shoes to sports bags, said margin of profit for the full year of 2011 is expected to decline by about 1-2 percentage points as compared with the first half of 2011.

Its margin of profit was at 6.8 percent during the first half period, down from 12.9 percent the same period in 2010.

Smaller rival China Dongxiang (Group) Co Ltd also reported a sharp 71.4 percent decline in first half profit to 225 million yuan due to challenges including intensifying competition and the problem of inventory accumulation faced by distributors.

China Dongxiang said it would provide stronger support to its distributors, improve store operating efficiency and to enhance store network optimisation in a bid to enhance growth.

Shares of Li Ning opened 2.4 percent down on Thursday, while China Dongxiang remained flat.

(Reporting by Donny Kwok; Editing by Jacqueline Wong)