20180913-中国银河国际证券-安踏体育-02020.HK-Buying_Amer_Sports_is_Ambitious,_but_Many_Questions_Unanswered_11页_1mb

Anta Sports Products [2020.HK] Summary

Core Content

Anta Sports Products (2020.HK) announced on 12 September 2018 its intention to acquire the entire share capital of Amer Sports (AMEAS FH), a Finland-listed company, through a non-binding preliminary indication of interest with private equity firm Fountain-Vest Partners. The deal is valued at EUR40.00/share, totaling EUR4.7 billion (RMB37.5 billion). It is considered the largest acquisition by a Chinese sporting goods company, and it would significantly expand Anta's brand portfolio and global presence.

Main Points

Pros of the Deal

• Acquisition of Niche Market Leaders: Anta would gain access to 13 internationally recognized brands such as Wilson, Salomon, and Arc'teryx, which are leaders in various niche markets. These brands are particularly well-positioned in China, a market with growing interest in niche sports.
• Potential Synergy: Anta could consolidate the supply chain and share marketing channels in China, which may lead to cost efficiencies and enhanced brand visibility.
• Strategic Positioning: The acquisition would help Anta prepare for the 2022 Beijing Winter Olympics and expand its presence in outdoor and winter sports markets.

Cons of the Deal

• Higher Gearing and FX Risk: The acquisition involves significant debt, which could increase Anta's leverage and expose it to foreign exchange risk due to the EUR-based transaction.
• Lower Margins: Amer Sports has lower profit margins compared to Anta, which could negatively impact Anta's overall profitability.
• Ambiguous Strategic Direction: Some brands (e.g., Descente) overlap with Anta's existing portfolio and are still in early development, raising concerns about the company's long-term strategy.
• Sino-US Trade Uncertainty: Since many of Amer's operations are based in the US, the ongoing trade tensions could create operational and financial uncertainties.

Key Financials

Deal Structure and Financing

• The deal is structured as a cash transaction, with EUR40/share.
• Anta is expected to finance the deal primarily through bank loans, with an estimated interest cost of 3.75% per annum.
• Anta is projected to hold over 50% of the stake in the consortium, with the possibility of additional private equity investors joining.
• Amer Sports may be privatized post-acquisition, with the private equity investors potentially listing the company to exit.

Financial Impact Analysis

• The acquisition is expected to be earnings dilutive due to the high valuation and potential additional costs.
• A significant amount of goodwill (EUR3.8 billion) is anticipated, which could lead to impairment risks.
• The deal may result in a negative impact on earnings if costs exceed projections or if synergy is not realized.

Valuation and Investment Recommendation

• Anta's earnings forecast remains unchanged, but the target price for 2019E PER is reduced from 24x to 19x.
• The target price is lowered from HK$48.1 to HK$38.0, reflecting the uncertainty of the deal and the challenging market environment.
• The investment recommendation is HOLD, as the potential downsides currently outweigh the benefits.

Conclusion

The acquisition of Amer Sports represents a strategic move for Anta to expand its global footprint and brand portfolio. However, the deal is associated with significant financial risks, including higher gearing, FX exposure, and potential earnings dilution. The uncertainty surrounding the deal and the current market conditions lead to a cautious recommendation, with investors advised to wait for more clarity on the transaction's financial implications.