20180815-广发证券_香港_-安踏体育-02020.HK-Operating_cash_flow_decline_not_a_cause_for_concern__FILA_growth_target_lifted_5页_582kb

Anta Sports (2020 HK) Equity Research Summary

Core Content and Key Points

Company Overview
Anta Sports is a leading Chinese sports apparel and footwear company, with a major shareholder Ding Shizhong holding 61.81% of the shares. The company's stock had a closing price of HK$36.50 on August 14, 2018, with a market cap of HK$98.0 billion. The report maintains a "Buy" rating with a target price of HK$49.60.

Stock Performance
The stock had shown strong performance in previous quarters, with a 3M average trading volume of 6.4 million shares. The 52-week high and low were HK$49.3 and HK$27.3 respectively.

Financial Highlights

1H18 Results

• Net Profit: Rmb1,945 million, up 34% YoY, exceeding Bloomberg and the analyst's estimates by 11‰ and 14% respectively.
• Revenue Growth: 44% YoY, driven by FILA's 85%+ sales growth and Anta's high-teen sales growth.
• Gross Margin (GPM): Increased by 3.7 percentage points to 54.3%, due to better cost control.
• Operating Profit Margin (OPM): Declined slightly by 0.4pp to 25.5%, mainly due to rising A&P expenses and other selling expenses.
• Effective Tax Rate: Increased by 1.2pp to 27.5%, attributed to the tax effect of unused tax losses from newly acquired brands.

Key Assumptions and Projections

• Target Price Increase: Raised from HK$44.20 to HK$49.60 based on 23x FY19E P/E.
• FILA Revenue CAGR: Raised from 30% to 50% for FY18–20, driven by accelerated network expansion in first and second-tier cities.
• Anta Brand Growth: Expected to align with retail sales growth in 1H18.
• Payout Ratio: Expected to remain stable at 70% for FY18 despite a slight drop from 66% in 1H17.

Operating Cash Flow (OCF) Analysis

• OCF Decline in 1H18: Rmb582 million, attributed to:
  • Increased advance payments to suppliers (Rmb291 million) due to rising raw material prices.
  • Reduction in A/P (Rmb287 million).
  • Increased inventories due to strong retail growth.
• OCF Growth: Exceptionally strong in 1H17 at 87%, setting a high base for 1H18.

Outlook and Risk Factors

1. 2H18 Revenue Growth: Management expects it to be similar to 1H18, based on strong retail sales performance and healthy channel inventory levels.
2. FILA Performance: Expected to continue its strong growth trajectory with a store number target increased to 1,400–1,500 by the end of FY18.
3. Newly Acquired Brands: May incur some losses in 2H18 due to reform measures.
4. Risks:
   • FILA performance may fall below expectations.
   • Macroeconomic slowdown could impact growth.

Peer Comparison

Retail Sales Growth

• Anta and FILA showed consistent growth, with FILA leading the way.
• Li Ning and 361 Degrees also demonstrated strong growth, but Anta's growth rate was more favorable in certain periods.

P/E Band

• Anta's P/E ratio has been gradually declining, indicating potential undervaluation relative to peers.

Financial Ratios and Metrics

Metric	FY16	FY17	FY18E	FY19E	FY20E
Revenue (Rmb m)	13,346	16,692	23,235	28,583	34,507
Net Profit (Rmb m)	2,386	3,088	4,162	5,105	6,103
EPS (Rmb)	0.95	1.17	1.55	1.90	2.26
Gross Margin (%)	48.4	49.4	54.3	55.1	56.0
Net Profit Margin (%)	17.9	18.5	17.9	17.9	17.7
ROE (%)	26.3	26.6	28.5	30.9	32.7

Valuation and Performance

• P/E Ratio: Gradually decreasing, suggesting potential upside.
• ROE: Increasing steadily, indicating better profitability.
• ROA: Also showing a positive trend, reflecting improved asset utilization.

Conclusion

Anta Sports is expected to outperform the Hong Kong Hang Seng Index over the next 12 months. The company's strong growth in FILA, improved GPM, and stable payout ratio support the "Buy" rating. However, risks such as FILA performance and macroeconomic conditions should be considered. The report suggests that the stock is undervalued based on current valuations and is poised for further growth.