Summary of Key Points
Longxing Tianxia is the second-largest sports shoe manufacturing contract manufacturer in China, producing 50 million pairs of shoes annually for clients including Li Ning, Adidas, Anta, and other well-known brands. It is now aiming to go public on the A-share market. Its main strategy is to relocate its factories to Southeast Asia (Vietnam and Indonesia) to reduce costs. However, it faces challenges such as thin margins, dependence on major customers, high inventory levels and accounts receivable, and insufficient research and development (R&D) investment. Additionally, the industry's brand landscape is highly established, making it almost impossible for Longxing Tianxia to transition from a contract manufacturer to a self-owned brand. As a result, it must rely on maintaining its relationship with major customers and shifting production capacity to survive.
I. Who is Longxing Tianxia?
Longxing Tianxia began its story in 1998 when the Long brothers from Taoyuan, Hunan, and Chen Tongju from Qianjiang, Hubei, opened several shoe mold factories in Dongguan. They started producing sports shoes in 2011 and officially established the company in 2015. Riding on China's rise as the "world's factory," the company has grown significantly and is now the second-largest contract manufacturer in the country, after Huali Group.
Currently, it operates 26 factories globally and produced 50 million pairs of shoes in 2025. Its clients include Li Ning, Adidas, Anta, Under Armour, and four of the top ten global sports brands. According to industry data, Longxing Tianxia ranks seventh among global sports shoe manufacturers and second in sales volume, with the largest production capacity in China.
II. What will the funds raised from the IPO be used for?
The main purpose of the IPO is to expand its factories in Vietnam and Indonesia. The sports shoe manufacturing industry has undergone five major shifts in location: from the UK to the US, then to Japan, Taiwan, and finally to mainland China. With rising costs and industrial upgrading in China, Longxing Tianxia seized the opportunity early on by establishing a base in Vietnam in 2016 and began preparing for a base in Indonesia in 2023.
Relocating to Southeast Asia is crucial because labor and land costs are lower there, which can help reduce production costs and maintain competitiveness—a key factor in the contract manufacturing industry.
III. High volume, low margins, and growth pressures
The main challenge for contract manufacturers is the low profit margin. Longxing Tianxia's revenue increased from 4.2 billion yuan to 5.8 billion yuan between 2023 and 2025, but its profit decreased from 272 million yuan to 244 million yuan (a 10% decline). The details are as follows:
- The gross margin is only around 17% (meaning for every 100 yuan in sales, the company earns a gross profit of 17 yuan).
- The net margin is even lower at around 4% (only 4 yuan in profit per 100 yuan in sales).
- Accounts receivable from customers have increased to 1.25 billion yuan in 2025, accounting for 42% of current assets, and inventory has risen to 1.02 billion yuan, accounting for 34% of current assets. These high levels of debt and inventory put significant pressure on the company's cash flow.
In short, Longxing Tianxia does the most work but earns the least profit and faces risks such as customers failing to pay on time and products not selling.
IV. Difficulties in transformation
While other contract manufacturers in industries (such as pet food with Gaibao becoming Maifudi) have successfully transitioned to self-owned brands, this is not possible in the sports shoe industry for several reasons:
- The global brand landscape is highly established, with Nike and Adidas still leading the market, and domestic brands like Anta and Li Ning are well-established.
- There are too many brands in the market, and consumers prefer well-known brands. It is very difficult for contract manufacturers to establish their own brands and compete with established ones.
Therefore, Longxing Tianxia must continue to rely on major customers. Its largest customer, Li Ning, accounts for over 20% of its revenue, but Li Ning's growth has slowed down recently. In contrast, Anta has acquired brands like Fila and Descente, increasing its orders for Longxing Tianxia. This highlights the company's vulnerability to changes in its major customer base.
V. Insufficient R&D investment
R&D is essential for contract manufacturers to improve their competitiveness (e.g., by developing lighter soles and more efficient production technologies). However, Longxing Tianxia's R&D investment has been declining, from 4.1% of revenue in 2023 to 3.09% in 2025. Although the company also operates in other areas such as molds and soles, insufficient R&D can affect product quality. If other manufacturers can produce cheaper and better products, Longxing Tianxia may lose business.
Its options are limited: it can either continue to relocate factories to Southeast Asia to reduce costs or secure more orders from major customers. However, these strategies are not sustainable in the long term, as there is a limit to cost reduction, and major customers may switch suppliers.
Conclusion
Longxing Tianxia is a typical example of a large contract manufacturer with low margins and a reliance on major customers, facing difficulties in transformation. The IPO aims to help the company survive by expanding its operations in Southeast Asia. Whether it can address its core issues (low profits and difficulty in transformation) remains to be seen. For investors, the risks associated with such companies include significant performance volatility due to their dependence on major customers and limited profit margins, as well as a clear ceiling on potential growth.