20230823-招银国际-安踏体育-02020.HK-Costs_control_and_efficiency_gains_are_the_keys_11页_1mb

Anta Sports (2020 HK) Company Update Summary

Date: August 23, 2023
Analyst: Walter WOO, Raphael TSE

Key Performance Highlights

• 1H23 Results: The company reported a strong beat in first-half results, with revenue up 14% YoY to RMB 29.6 billion (in-line with estimates) and net profit rising 32% YoY to RMB 4.8 billion (4% above estimates). This was mainly due to a one-off impairment charge of RMB 1.1 billion, but adjusted metrics showed even stronger performance, with operating profit increasing 57% YoY, driven by FILA's exceptional margin expansion and lower advertising expenses.
• Core Factors: FILA led the performance with a significant improvement in operating profit margin (from 22.5% in 1H22 to 29.7% in 1H23), supported by robust other brands and effective cost controls reducing advertising expenses to 7.1% of sales.
• Financial Metrics: Revenue grew at an average annual rate of 38.9% over the past three years, with net profit showing a 49.2% CAGR in 2020A-2022A, but guidance for 2023E/2024E indicates continued growth.
• Margin Improvements: Despite a weak retail environment in May-August 2023, margin expansion is expected to sustain, with FILA's operating margin targeting around 26% for FY 2023, supported by new product launches and operational efficiencies.
• Forward Outlook: Analysts are turning more positive, with sales growth expected to improve in H2 2023E due to a low base, resumption of wholesale growth, and increased marketing investments for events like the Paris Olympics.

Analyst Recommendation and Valuation

• Recommendation: Maintain BUY rating, reflecting potential returns exceeding 15% over the next 12 months.
• Target Price: Raised to HK$107.97 (up 39.0% from previous), based on a 27x forward P/E multiple for FY 2023E, which is above the 5-year average of 26x.
• Valuation Metrics: Current P/E stands at 19.4x, P/B at 4.8x, and the stock trades at a discount to peer valuations in the sports apparel sector.
• Peer Comparison: Valuation is competitive, with an average P/E of 13.1x among peers, suggesting upside potential.

Risks and Caveats

• Revenue Growth: While sales growth targets are marginally achievable, global economic conditions and competition could impact performance.
• Margin Sustainability: Increased marketing expenses in H2FY23E might pressure margins, though long-term operating leverage is expected.
• Balance Sheet: The company has a net debt-to-equity ratio of 0.7x, indicating moderate financial leverage, but effective tax rates and debt levels should be monitored.
• Regulatory and Market Factors: As noted in disclosures, investments are subject to market fluctuations and uncertainties due to dependency on underlying assets and external factors.

Addressed: Key findings from the earnings summary include upside in other brands (e.g., Descente and Kolon) with sales growing nearly 80%, and financial assumptions detail projected revenue and profit growth over FY23E-FY25E, with a conservative outlook on margins and returns.