Anta Sports (2020 HK)

Transcription

1 Equity Research Consumer Discretionary Anta Sports (2020 HK) Hold (downgraded) Target price: HK$22.80 Albert Yip, CFA SFC CE No. ADT GF Securities (Hong Kong) Brokerage Limited 29-30/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong Downgrade from Buy to Hold on rich valuation Downgrade to Hold FY16 net profit rose 17% to Rmb2,386m, in line with consensus, but 3% below our estimate as revenue and GPM came in slightly lower than our expectation. We lower our FY17/18 net profit forecasts by 4%/2% to factor in lower GPM and higher A&P expenses ratio assumptions. Looking into FY17, we forecast revenue will grow by 21%, driven by high single-digit for Anta-brand offline sales, and 40-50% in the Fila/Anta-brand e- commerce segments. We estimate OP margin will drop by 0.4ppt to 23.6% due to increasing losses at Descente (full-year operation) and an increase in A&P expenses ratio (improved Klay Thompson endorsement package and likely renewal of COC sponsorship in 2017). We continue to like Anta s multi-brand, diversified drivers and strong execution, but we think its current valuation is rich. The stock is trading at 19x FY17E P/E, above its +1sd valuation of 18x. Anta s current P/E valuation is also close to Nike s 22x for FY18 (Y/E May), which we believe could be a P/E cap for Anta (Nike s P/E premium over Anta is now at a five-year low see Figure 4). Further, we estimate that the Kolon JV may not provide any immediate meaningful earnings to the company in FY17, which may disappoint the market as we believe expectation on upcoming M&A could be high. We lower our target price from HK$23.70 to HK$22.80, based on 18x FY18E P/E. 4Q16 retail sales accelerated Retail sales of Anta branded products accelerated from low-teen in 3Q16 to high-teen in 4Q17 on improved consumer sentiment and a low base. Anta core brand offline segment/anta Kids offline segment/anta-branded product e-commerce segment grew by digit/30%+/50%+, respectively, in 4Q16. The Anta brand retail discount was 28% in 4Q16, stable compared to 4Q15. Non Anta-branded product (mainly Fila) retail sales jumped 50-60% in 4Q16 (vs 60-70% in 3Q16). 3Q17 trade fair results 3Q17 order book increased by a low single-digit, a slowdown from the digit in 2Q17. However, because the company raised the proportion of planned replenishment orders to 10% from <5% in 3Q16, we estimate like-for-like basis order could be around 10% if order replenishment work flow is executed smoothly. Stock performance 30% 20% 10% 0% -10% -20% -30% -40% Feb-16 May-16 Aug-16 Nov-16 Feb-17 Source: Bloomberg Key data Source: Bloomberg HSI Anta Feb 22 close (HK$) Shares in issue (m) Major shareholder Ding Shizhong (55.4%) Market cap (HK$ bn) M avg. vol. (m) W high/low (HK$) 25.85/14.04 Forming a 50/50 JV with Kolon Kolon Sport is a leading mid to high-end Korean outdoor brand. Kolon Corporation ( KS) and Kolon Industries ( KS) will each hold 25% of the JV and inject Kolon Sport IP into the JV and grant exclusive licensing rights to use the trademark in the Greater China region. According to the company, the investment cost, not announced yet, is less than 5% of the company s NAV (Rmb9.9bn). The deal is pending approval from antitrust authorities, which could take around three months. Kolon Sport currently has around 210 stores in China, based on our channel checks. Outdoor products are currently a relatively small category for the Anta brand in terms of sales, and we think the JV could help the company to accelerate in this area. Outlook 1) Store expansion: (a) The number of stores for Anta and Anta Kids increased by 4% to 8,860 in FY16, beating guidance of 8,500-8,600. In FY17, the company plans to grow the number to 9,000-9,100, led by Anta Kids openings; (b) Fila s network expansion pace also beat guidance of in FY16, reaching 802 stores (including Fila and Fila Kids). For FY17, the target has been set at 950-1,000. 2) The company plans to increase its Descente store number from 6 in FY16 to 60 in FY17, and further to ~200 stores in three years. Management aims to achieve breakeven in FY18. 3) FY17 guidance: (a) Anta and Anta Kids offline revenue: high single-digit ; (b) Fila and Fila Kids revenue: 40-50% ; (c) A&P expenses ratio: 12-14%; 4) M&A: We think the company is still looking for targets in high-end niche segments such as yoga and tennis to implement its multi-brand strategy. Stock valuation Turnover (Rmb m) Net profit (Rmb m) EPS (Rmb) EPS YoY (%) P/E Yield (%) BPS (Rmb) P/B ROE (%) ,923 1, ,126 2, ,346 2, E 16,211 2, E 19,117 3,

2 Results highlights Results highlights Revenue rose 20% to Rmb13,346m, in line with consensus, attributable to 50%+ revenue in its Fila and e-commerce segments, 30%+ for the Anta Kids offline segment and digit for the Anta core brand offline segment. Revenue for the Anta core brand offline/anta Kids offline/fila/anta-branded e-commerce segments came in at high-fifties/low-teen/20%/low-teen, respectively. GPM increased by 1.8ppt to 48.4%, better than the street estimate of 47.8% but slightly below our estimate of 48.9%. OP rose 19% but OP margin decreased by 0.2ppt to 24.0%, mainly due to dilution in its Fila business (its OP margin was up 5ppt to 22%) and start-up losses at Descente. Dividend payout (including special dividends) was kept at 70%. Cash position Operating cash flow rose 30% to Rmb2.5bn. Net cash balance increased by 17% to Rmb6.6bn. A/R turnover days increased by 6 days to 39 days, mainly due to an increased FILA retail sales contribution (90%+ of Fila revenue came from retail operations and around 73% of new stores are in department stores, which led to increased receivables from department store operators) and advanced ordering from distributors due to the early CNY holiday. The quality of A/R remained solid as the percentage of receivables overdue dropped from 3% to 1%. Inventory turnover rose by 3 days to 61 days due to Fila s retail operation expansion. Figure 1: Results review Y/E Dec (Rmb m) FY16 FY15 % change 2H16 2H15 % change 1H16 1H15 % change Revenue 13,346 11,126 20% 7,203 6,016 20% 6,143 5,110 20% Cost of sales (6,887) (5,941) 16% (3,685) (3,213) 15% (3,201) (2,728) 17% Gross profit 6,459 5,185 25% 3,518 2,803 25% 2,941 2,382 23% Other income % % % Other net gains/(losses) (17) (8) na (17) (8) na 0 0 na Selling and distribution expenses (2,831) (2,212) 28% (1,570) (1,221) 29% (1,261) (991) 27% Administrative expenses (685) (504) 36% (386) (270) 43% (299) (234) 28% Operating profit 3,203 2,697 19% 1,715 1,430 20% 1,488 1,267 17% Finance income % % % Finance costs (65) (82) -21% (33) (47) -31% (32) (34) -8% Profit before tax 3,311 2,829 17% 1,734 1,488 17% 1,577 1,341 18% Tax expense (866) (741) 17% (452) (387) 17% (415) (354) 17% Profit after tax 2,445 2,088 17% 1,282 1,102 16% 1, % Non-controlling interests (59) (48) 24% (26) (26) -2% (33) (21) 56% Net profit 2,386 2,041 17% 1,256 1,075 17% 1, % EPS (Rmb) % % % DPS (HK$) % #DIV/0! % Margin & Ratio (%) Gross margin Operating margin (0.2) (0.6) SG&A expenses ratio A&P expenses ratio (0.1) (0.4) Staff expenses ratio (0.2) R&D expenses ratio (0.1) (0.8) Net margin (0.5) (0.4) (0.5) Effective tax rate (0.0) (0.1) Payout ratio FY16 FY15 change 1H16 1H15 change Inventory days A/C receivables days A/C payable days FY16 FY15 change 1H16 FY15 change Anta stores (incl kids) 8,860 8,489 4% 8,510 8,489 0% FILA stores (incl kids) % % Net cash (Rmb m) 6,579 5,603 17% 5,879 5,603 5% Figure 2: Peer comparison order book Anta (2020 HK) Li Ning (2331 HK) Xtep (1368 HK) Peak 361 Degrees (1361 HK) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 low doubledigit low single- digit digit digit digit digit digit digit digit digit digit mid-twenties high-teens low-teens high-teens 10% 10% 11% 11% 16% 18% 15% 15% low-teens low-teens decline na na 2

3 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Company report Figure 3: Peer comparison SSSG Anta* (2020 HK) Li Ning (2331 HK) Xtep (1368 HK) Peak 361 Degrees (1361 HK) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 low-teen high-teen digit digit digit digit digit low-teens low single- low single- digit digit digit digit digit digit digit digit digit digit digit digit digit digit flat na na 6% 7% 8% 8% 7% 7% 7% 8% * Since 1Q16, Anta has reported retail sell-through of the Anta core brand and Anta Kids, instead of SSSG of the Anta core brand Figure 4: Nike s P/E premium over Anta at five-year low 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% 2/22/2012 2/22/2013 2/22/2014 2/22/2015 2/22/2016 2/22/2017 Premium % +1sd Average -1sd Sources: Bloomberg, GF Securities (Hong Kong) estimates Figure 5: Anta s P/E band HK$ x 18x 14x 10x 6x 0 Sources: Bloomberg, GF Securities (Hong Kong) estimates 3

4 Figure 6: Key assumptions (Rmb m) FY14 FY15 FY16 FY17E FY18E Total revenue 8,923 11,126 13,346 16,211 19,117 % 22.5% 24.7% 20.0% 21.5% 17.9% - Anta branded products * 7,143 8,231 9,052 9,829 10,644 % 13.8% 15.2% 10.0% 8.6% 8.3% - Other products * 1,779 2,895 4,294 6,382 8,473 % 76.8% 62.7% 48.3% 48.6% 32.8% Gross profit 4,027 5,185 6,459 8,081 9,704 Gross margin 45.1% 46.6% 48.4% 49.9% 50.8% Selling & distribution expenses ratio 19.0% 19.9% 21.2% 22.9% 23.7% Administrative expenses ratio 4.4% 4.5% 5.1% 5.3% 5.3% Operating profit margin 22.6% 24.2% 24.0% 23.6% 23.6% Effective tax rate 22.7% 26.2% 26.2% 26.3% 26.4% Net profit 1,700 2,041 2,386 2,861 3,334 % 29.3% 20.0% 16.9% 19.9% 16.5% Net profit margin 19.1% 18.3% 17.9% 17.6% 17.4% Payout ratio 71.0% 70.0% 70.2% 70.0% 70.0% estimates * Note: Both revenue figures are our estimates 4

5 Figure 7: Financial statements Income Statement Balance Sheet Year-end Dec 31 (Rmb m) FY14 FY15 FY16 FY17E FY18E Year-end Dec 31 (Rmb m) FY14 FY15 FY16 FY17E FY18E Revenue 8,923 11,126 13,346 16,211 19,117 Fixed assets Cost of sales (4,896) (5,941) (6,887) (8,130) (9,413) PPE 1,068 1,166 1,327 2,004 2,336 Gross profit 4,027 5,185 6,459 8,081 9,704 Lease prepayments Prepayment for acquisitions Other income Intangible assets Other net (loss)/income (11) (8) (17) (10) (10) Other financial assets Selling & distribution expenses (1,697) (2,212) (2,831) (3,712) (4,531) Deferred tax assets Administration expenses (397) (504) (685) (860) (1,006) 2,037 2,345 2,770 3,176 3,483 Operating profit 2,019 2,697 3,203 3,823 4,514 Current assets Net finance income Inventories 867 1,016 1,295 1,529 1,770 Profit before tax 2,243 2,829 3,311 3,968 4,637 A/C receivables 876 1,165 1,676 1,922 2,267 Income tax expense (510) (741) (866) (1,044) (1,224) Prepayments 825 1, ,140 1,319 Non-controlling interests (32) (48) (59) (63) (79) Other financial assets Net profit 1,700 2,041 2,386 2,861 3,334 Plegded bank deposits EPS (Rmb) Fixed deposits held at banks with maturity over 3 months 1,100 1,365 1,492 1,700 2,000 Cash and cash equivalents 4,934 5,166 5,830 6,103 6,526 Growth rates (%) 9,347 10,157 11,453 12,588 14,077 Revenue Net profit Total assets 11,384 12,502 14,224 15,765 17,560 EPS Current liabilities Margin & ratios (%) A/C payables ,075 1,244 Gross margin Other payables 1,072 1,239 2,150 2,284 2,512 OP margin Bank borrowings 1,348 1, Net margin Amounts due to related parties Effective tax rate Tax payables Payout ratio ,185 3,563 4,273 4,638 5,093 Cash flow Statement Non-current liabilities Year-end Dec 31 (Rmb m) FY14 FY15 FY16 FY17E FY18E Long-term payable to non-controlling interests Deferred tax liabilities Profit before tax 2,243 2,829 3,311 3,968 4, Depreciation and amortization Net finance cost (229) (164) (54) (145) (123) Equity (Reversal of)/provision for doubtful debts (46) (9) (6) 0 0 Shareholders' equity 7,795 8,580 9,549 10,661 11,922 Write-down/(reversal write-down) of inventories (59) (10) Non-controlling interests Others ,005 8,814 9,896 11,072 12,412 Due to related parties (1) 3 (1) 0 0 Change of working capital (68) (418) (215) (356) (368) Total liabilities & equity 11,384 12,502 14,224 15,765 17,560 Interest received Tax paid (522) (738) (948) (955) (1,134) Financial Ratios Operating cash flow 1,686 1,903 2,468 2,965 3,544 Year-end Dec 31 FY14 FY15 FY16 FY17E FY18E Capex (263) (461) (573) (650) (650) Current ratio Acquisition of subsidiaries 0 (26) Quick ratio Disposals Inventory turnover days Others A/C payable turnover days Change of other financial investments (6) A/C receivable turnover days Change in pledged deposit Change in time deposit with maturity over 3M (605) (265) (127) (208) (300) Asset turnover Investing cash flow (865) (413) (515) (850) (950) Total assets/total equity Net cash (Rmb m) 5,431 5,603 6,579 7,060 7,783 Change of borrowings 858 (18) (392) 0 0 Others (13) (4) (3) ROE (%) Dividend paid (1,090) (1,356) (1,572) (1,839) (2,168) ROA (%) Share issue Financing cash flow (238) (1,294) (1,398) (1,843) (2,171) Net change of cash flow estimates 5

6 Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 15% Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15% Hold Expected stock relative performance ranges between -5% and 5% Underperform Stock expected to underperform benchmark by more than 5% Sector ratings Positive Sector expected to outperform benchmark by more than 10% Neutral Expected sector relative performance ranges between -10% and 10% Cautious Sector expected to underperform benchmark by more than 10% Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report. 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