20180228-兴业金融证券-安踏体育-02020.HK-Pivoting_To_Become_An_Aspirational_Brand_13页_344kb

ANTA Sports Products Ltd Summary

Core Content

ANTA Sports Products Ltd is a leading domestic sportswear brand in China, aiming to pivot towards becoming an aspirational brand by enhancing product quality and positioning. The company has over 7,000 stores in China and uses a combination of OEM and self-owned factories for manufacturing, while relying on franchise distributors for retail sales.

Main Points

• Pivoting Strategy: Anta plans to elevate its brand image by sourcing from higher-end OEMs and using patented fabrics. This shift is aimed at improving product quality and aligning with international standards.
• Sales Performance: FY17 sales grew by 25% YoY, driven by strong retail performance, particularly in 4Q17. Anta branded products saw 20-25% YoY growth, while non-core brands like Fila saw 85-90% YoY growth.
• Gross Profit Margin (GPM): GPM increased in FY17 to 49.4%, but it contracted in 2H17 due to rising raw material costs, especially for down feathers, and increased fast-replenishment orders.
• Operating Margin: Management expects operating margins to increase slightly in FY18 as inflation eases and costs are managed more effectively.
• Share Price and Valuation: Despite a share price drop after results, the company's strong sales and customer demand suggest an opportunity for investors. The target price (TP) remains HKD44.00, implying a 27x FY18F P/E.
• Non-Core Brands: Anta aims to improve the performance of non-core brands such as Descente and Sprandi, which are expected to break even or reduce losses by rationalizing inefficient stores.
• Financial Outlook: Sales growth is expected to continue, with a 2% increase in FY18F forecasts. Earnings are adjusted slightly, with a 1.8ppt reduction in GPM and 0.6ppt reduction in SG&A expenses.
• Valuation Metrics:
  • Recurring P/E: Expected to decrease from 34.0 in Dec-16 to 15.0 in Dec-20F.
  • P/B: Expected to decrease from 8.31 to 4.77.
  • EV/EBITDA: Expected to decrease from 23.1 to 10.0.
  • Dividend Yield: Projected to increase from 2.1% to 4.7%.
• Key Risks:
  • Faster-than-expected raw material inflation.
  • Continued unprofitability of up-and-coming brands.
  • A potential downturn in retail sentiment.

Key Financial Highlights

Share Data

Share Performance

Shareholders

Key Takeaways from Analyst Meeting

• Retail Environment: Surprisingly strong performance across all segments, with no major discounting or inventory pile-ups.
• Discount Rate: Improved by 1ppt for both Anta and Fila in 4Q17.
• Product Re-orders: Increased to maintain store stock levels.
• GPM Compression: Due to raw material costs and fast-replenishment orders, with no cost passed on to distributors or consumers.
• Core EBIT Growth: Increased by 20% YoY in FY17, but still lower than sales growth.
• Net Profit: Increased by 29.4% YoY in FY17, partially due to forex gains.

Financial Exhibits

• Financial Model Updated: 2018-02-27
• Key Drivers:
  • Product mix upgrade
  • Improvement in the sports participation rate
• Key Risks:
  • Channel oversupply
  • Homogenisation
  • Rivals setting competitive prices

Conclusion

ANTA Sports Products Ltd is on a multi-year growth trajectory, supported by both core brand growth and non-core brand expansion. Despite the 2H17 GPM contraction, the company remains confident in its strategy and future performance. The target price of HKD44.00 and adjusted forecasts indicate continued positive outlook for the company.