20180709-中国银河国际证券-China_Consumer_Sector__China_Sporting_Goods_–_A_Multi-year_Growth_Story_Initiate_BUY_on_Li_Ning,_Anta_and_Xtep_45页_1mb

China Consumer Sector Summary

Core Content

The China sporting goods sector is identified as a multi-year growth opportunity, driven by rising per-capita income, increasing health consciousness, and supportive government policies. The market has shown recovery since 2014, and is expected to continue growing at a CAGR of 8.7% from 2017 to 2021E. Despite a downturn in 2011, the sector is now more rational and sustainable, with a focus on performance and outdoor products.

Main Points

• Market Recovery: The sporting goods industry entered a downturn in 2011, bottomed out in 2014, and is now in a recovery phase expected to last for several years.
• Growth Drivers:
  • Rising per-capita income in China.
  • Increasing health and fitness awareness among Chinese consumers.
  • Government initiatives promoting sports, including the 2022 Winter Olympics and the National Fitness Plan.
• Market Concentration: International brands like Nike and Adidas dominate the market, but domestic brands such as Anta, Li Ning, and Xstep are gaining traction through strategic moves and product innovation.
• Investment Opportunities:
  • Anta Sports [2020.HK] is highlighted for its consistent expansion and shareholder returns.
  • Li Ning [2331.HK] and Xstep [1368.HK] are seen as turnaround plays with strong earnings recovery potential.
• Sector Outlook: The sector is expected to outperform the overall retail market, with a focus on high-growth sports and improved product design and marketing.

Key Companies and Their Performance

Market Potential

• The China sportswear market is expected to grow at a CAGR of 8.7% from 2017 to 2021E, with sports footwear as the primary growth driver.
• In 2017, the sportswear market size reached RMB212.1 billion, accounting for 46% of the total sporting goods market.
• The sports industry contributes 0.9% to China's GDP in 2016, significantly lower than the 2-3% in developed countries.

Gap with Developed Markets

• Per-Capita Consumption: In 2016, China's per-capita sportswear consumption was only $20, compared to over $1,700 in the US.
• Sports Venue Access: China's per-capita sports venue area in 2015 was 1.49 sqm, much lower than 16 sqm in the US and 19 sqm in Japan.
• GDP Contribution: China's sports industry output was only 1/5th of the EU and US combined in 2016.

How to Narrow the Gap

1. Government Policy: Policies such as the National Fitness Plan (2016-2020) and the 2022 Winter Olympics are expected to boost participation and consumption.
2. Consumer Demand: As health awareness increases, there is a growing demand for high-performance and specialized sports products.
3. Infrastructure Development: Improving access to public sports facilities is a key factor in increasing participation and consumption.
4. Strategic M&A: Companies like Anta have gained market share through acquisitions such as FILA.
5. Self-Improvement: Domestic brands are improving product design, marketing, and channel management to compete with international players.

Investment Themes

1. Consistent Growth: Anta Sports is highlighted for its consistent expansion and shareholder returns.
2. Turnaround Plays: Li Ning and Xstep are seen as companies with strong potential for earnings recovery.

Conclusion

The China sporting goods sector presents a compelling long-term investment opportunity, supported by both policy and consumer trends. While international brands currently dominate, domestic players are well-positioned to capitalize on the growing market and increasing health awareness. The current market correction offers a good entry point for investors looking to benefit from the sector's multi-year growth story.