Equity Research Consumer Discretionary Anta Sports (2020 HK) Buy (maintained) Target price: HK$18.50 Product mix improvement in 4Q15 order book 4Q15 order book kept at low-teen, better product mix Order book (including the Anta brand and Kids) was maintained at low-teens despite a high base (lowteen in 4Q14 vs digit in 3Q14). Overall, volume was faster than ASP, and footwear was faster than apparel. Footwear ASP grew at a digit, driven by increased order of NBA basketball shoes and professional running shoes with higher ASP. By category, running and basketball footwear accounted for 40-50% and low-teen of sales volume, respectively. We expect a GM improvement YoY in the 4Q15 order book as the GM of footwear is higher than apparel. Albert Yip, CFA SFC CE No. ADT599 albertyip@gfgroup.com.hk +852 3719 1010 GF Securities (Hong Kong) Brokerage Limited 29-30/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong 1Q15 SSSG outperformed peers The Anta brand reported a digit SSSG (vs digit in 4Q14), also driven by footwear. Fila s 1Q15 SSSG was above 20%, in line with our estimate for 18% in FY15. During 1Q15, the average retail discount was kept at ~25% for Anta and Fila (vs 25% in 2H14). Channel inventory was maintained at a healthy 4-5 month level at end-1q15. Focus on product functionality Going forward, the company will focus on product functionality to differentiate itself from peers. We agree with the company that of functional products to outperform casual products. For example, we believe running footwear has great potential in China. In 2014, there were 900,000 running competition finishers in China, according to Chinese Athletic Association, representing only 0.06% of China s population. In the US, there were 19m running competition finishers in 2013, according to Running USA, equivalent to 6% of the US population. Maintain Buy Both 1Q15 SSSG and 4Q15 trade fair results were in line with our expectation. We like Anta s diversified drivers from various segments and its market share expansion underpinned by strong execution and rising brand equity. We maintain our TP of HK$18.50, still based on 18x FY15E P/E. Trading at 17.4x FY15E P/E, Anta s valuation remains attractive compared to A-share peer Guirenniao s (603555 CH) 82.6x FY15E P/E. The reduction of wholesale discount for the Anta brand are a potential catalyst. The company is negotiating with its distributors and sees a 50/50 chance of reducing the wholesale discount for the coming 1Q16 sales fair. Stock performance 75% 50% 25% 0% -25% May-14 Aug-14 Nov-14 Feb-15 May-15 HSI Anta Source: Bloomberg Key data May 14 close (HK$) 17.74 Shares in issue (m) 2497.6 Major shareholder Ding Shizhong (55.4%) Market cap (HK$ bn) 44.3 3M avg. vol. (m) 5.98 52W high/low (HK$) 19.38/10.98 Source: Bloomberg Stock valuation Turnover Net profit EPS EPS YoY P/E Yield BPS P/B ROE (Rmb m) (Rmb m) (Rmb) (%) (%) (Rmb) (%) 2012 7,623 1,359 0.545-21 26.1 2.7 2.8 5.1 20.7 2013 7,281 1,315 0.527-3 26.7 2.7 2.9 4.8 18.9 2014 8,923 1,700 0.681 29 20.7 3.4 3.2 4.4 22.7 2015E 10,761 2,031 0.814 19 17.4 3.5 3.5 4.0 24.8 2016E 12,475 2,361 0.946 16 14.8 4.2 4.0 3.5 25.9
Figure 1: Peer comparison order book Anta 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 20-30% 15-25% 10-20% 5-15% high singledigit digit digit digit digit digit digit digit Li Ning NA NA NA NA NA NA NA Xtep 15-20% Peak 0% 361 Degrees 23% 15-20% 25-30% 23% 20% NA 15-17% Figure 2: Anta s better-than-peer SSSG Figure 3: Major assumptions high singledigit estimates NA mid singledigit high singledigit low-teen 0% mid-twenties high-teen NA 17% 11% 11% 7% 8% 11% 11% 16% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 mid singledigit digit digit digit digit digit Anta 0% 0% 0% ------------- 9% ------------ positive negative positive mid singledigit digit Li Ning NA NA - digit digit digit digit Xtep 0% 0% 0% 0% digit digit digit digit digit digit Peak 0% 0% 361 Degrees -2% -1% 0% 2% 2% 3% 5% 6% 6% (Rmb m) FY11 FY12 FY13 FY14 FY15E FY16E Total revenue 8,905 7,623 7,281 8,923 10,761 12,475 % 20.2% -14.4% -4.5% 22.5% 20.6% 15.9% - Anta products 7,886 6,808 5,823 6,435 7,169 7,965 % 16.5% -13.7% -14.5% 10.5% 11.4% 11.1% - Other products 1,019 815 1,458 2,488 3,592 4,511 % 58.9% -20.1% 79.0% 70.6% 44.4% 25.6% -- FILA 692 1,223 1,678 2,053 % 76.8% 37.1% 22.4% -- Kids 451 680 984 1,213 % 50.5% 44.8% 23.3% -- E-commerce 255 497 820 1,107 % 95.0% 65.0% 35.0% -- Others 60 88 110 138 % 25.0% 25.0% 25.0% Gross profit 3,762 2,893 3,039 4,027 4,882 5,693 Gross margin 42.3% 38.0% 41.7% 45.1% 45.4% 45.6% - Anta products 41.2% 43.0% 43.4% 43.6% - Other products 44.2% 48.5% 48.9% 49.2% Selling & distribution expenses ratio 16.3% 13.6% 16.5% 19.0% 19.4% 19.7% Administrative expenses ratio 4.2% 5.5% 5.2% 4.4% 4.6% 4.4% Operating profit margin 22.6% 20.5% 21.5% 22.6% 22.5% 22.7% Effective tax rate 20.2% 21.6% 24.1% 22.7% 23.0% 23.0% Net profit 1,730 1,359 1,315 1,700 2,031 2,361 % 11.5% -21.5% -3.2% 29.3% 19.5% 16.2% Net profit margin 19.4% 17.8% 18.1% 19.1% 18.9% 18.9% Payout ratio 61.1% 71.7% 71.7% 71.0% 61.7% 61.7% low-teen high-teen Page 2
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 Company report Figure 4: P/E band HK$ 30 25 22x 20 18x 15 14x 10 10x 5 6x 0 Figure 5: Valuation comparison for sportswear companies Sources: Bloomberg, GF Securities (HK) estimates Sources: Bloomberg, GF Securities (HK) estimates Price TP Mkt Cap P/E (x) EPS (%) Revenue (%) Yield (%) P/B (x) ROE (%) Sportswear Ticker Rating (May 14 2015) (HK$) (HK$ m) FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E FY15E FY15E Anta 2020 HK Buy 17.74 18.50 44,308 20.7 17.4 14.7 29 19 17 23 21 17 3.4 3.6 4.2 4.0 24.8 Peak 1968 HK Accumulate 2.70 2.47 5,683 14.0 12.2 11.0 31 15 10 9 10 9 4.4 4.5 5.0 1.0 8.5 Xtep 1368 HK Hold 3.10 2.85 6,752 11.2 10.4 9.5 (21) 8 8 10 9 8 5.3 4.8 5.3 1.1 10.7 China Dongxiang 3818 HK NR 1.87 na 10,353 8.9 24.6 29.2 334 (64) (16) (11) 9 9 3.3 3.1 2.3 0.8 3.5 Li Ning 2331 HK NR 4.28 na 8,069 na 194.5 20.3 na na 859 16 18 15 na 0.1 0.5 2.1 2.6 Hosa 2200 HK NR 3.89 na 6,444 12.9 11.5 10.6 4 12 9 19 15 15 na na na na 24.9 361 Degrees 1361 HK NR 3.01 na 6,223 12.5 13.9 9.0 88 (10) 54 9 16 19 3.3 3.7 4.6 0.9 8.7 Pou Sheng Intl 3813 HK NR 0.72 na 3,873 na na na na na na na na na na na na na na Average 13.4 40.7 14.9 77 (3) 135 11 14 13 4.0 3.3 3.6 1.7 12.0 Page 3
Figure 6: Financial statements Income Statement Balance Sheet Year end Dec 31 (Rmb m) FY12 FY13 FY14 FY15E FY16E Year end Dec 31 (Rmb m) FY12 FY13 FY14 FY15E FY16E Revenue 7,623 7,281 8,923 10,761 12,475 Fixed assets Cost of sales (4,730) (4,242) (4,896) (5,879) (6,782) PPE 918 935 1,068 1,158 1,241 Gross profit 2,893 3,039 4,027 4,882 5,693 Lease prepayments 154 149 163 159 154 Prepayment for acquisition of land use rights 151 152 147 147 147 Other income 125 110 97 121 145 Intangible assets 529 507 489 463 436 Other net (loss)/income 3 (8) (11) (11) (11) Other financial assets 31 39 20 20 20 Selling & distribution expenses (1,038) (1,199) (1,697) (2,082) (2,458) Deferred tax assets 151 149 149 149 149 Administration expenses (420) (376) (397) (490) (554) 1,934 1,931 2,037 2,095 2,147 Operating profit 1,563 1,566 2,019 2,419 2,827 Current assets Net finance cost 166 187 224 277 315 Inventories 687 689 867 1,041 1,201 Profit before tax 1,730 1,753 2,243 2,697 3,141 A/C receivables 666 852 876 1,024 1,152 Income tax expense (374) (423) (510) (620) (723) Prepayments 707 1,081 825 991 1,143 Non-controlling interests 3 (15) (32) (45) (58) Other financial assets 830 510 535 535 535 Net profit 1,359 1,315 1,700 2,031 2,361 Plegded bank deposits 225 215 210 210 210 EPS (Rmb) 0.54 0.53 0.68 0.81 0.95 Fixed deposits held at banks with maturity over 3 months 980 495 1,100 1,400 1,700 Cash and cash equivalents 4,008 4,344 4,934 5,254 5,829 Growth rates (%) 8,102 8,187 9,347 10,456 11,770 Revenue (14) (4) 23 21 16 Net profit (21) (3) 29 19 16 Total assets 10,036 10,118 11,384 12,552 13,917 EPS (21) (3) 29 19 16 Current liabilities Margin & ratios (%) A/C payables 633 867 582 699 806 Gross margin 38.0 41.7 45.1 45.4 45.6 Other payables 1,141 1,023 1,072 1,223 1,340 OP margin 20.5 21.5 22.6 22.5 22.7 Bank borrowings 997 490 1,348 1,348 1,348 Net margin 17.8 18.1 19.1 18.9 18.9 Amounts due to related parties 2 7 6 6 6 Effective tax rate 21.6 24.1 22.7 23.0 23.0 Tax payables 125 187 176 248 289 Payout ratio 71.7 71.7 71.0 61.7 61.7 2,898 2,574 3,185 3,524 3,790 Cash Flow Statement Non-current liabilities Year end Dec 31 (Rmb m) FY12 FY13 FY14 FY15E FY16E Long-term payable to non-controlling interests 39 37 36 36 36 Deferred tax liabilities 167 159 158 158 158 Profit before tax 1,730 1,753 2,243 2,697 3,141 205 195 194 194 194 Depreciation and amortization 110 130 159 191 198 Net finance cost (170) (175) (229) (277) (315) Equity (Reversal of)/provision for doubtful debts 44 26 (46) (10) 0 Shareholders' equity 6,752 7,154 7,795 8,578 9,620 Write-down/(reversal write-down) of inventories 91 8 (59) (15) 0 Non-controlling interests 180 195 209 255 312 Others 13 (32) 3 0 0 6,933 7,349 8,005 8,833 9,933 Due to related parties 1 4 (1) 0 0 Change of working capital 429 (425) (68) (221) (215) Total liabilities & equity 10,036 10,118 11,384 12,552 13,917 Interest received 163 206 205 305 345 Tax paid (446) (367) (522) (565) (671) Financial Ratios Operating cash flow 1,965 1,128 1,686 2,105 2,483 Year end Dec 31 FY12 FY13 FY14 FY15E FY16E Capex (227) (179) (263) (250) (250) Current ratio 2.8 3.2 2.9 3.0 3.1 Acquisition of subsidiaries (136) (15) 0 0 0 Quick ratio 2.6 2.9 2.7 2.7 2.8 Disposals 8 7 4 0 0 Inventory turnover days 50 59 58 59 60 Others 0 0 0 0 0 A/C payable turnover days 47 65 54 40 40 Change of other financial investments (841) 312 (6) 0 0 A/C receivable turnover days 34 38 35 32 32 Change in pledged deposit (210) 9 5 0 0 Change in time deposit with maturity over 3 months 430 485 (605) (300) (300) Asset turnover 0.8 0.7 0.8 0.9 0.9 Investing cash flow (976) 620 (865) (550) (550) Total assets/total equity 1.4 1.4 1.4 1.4 1.4 Net cash (Rmb m) 5,046 5,074 5,431 6,052 6,926 Change of borrowings 997 (528) 858 0 0 Others (4) (5) (13) (4) (4) ROE (%) 20.7 18.9 22.7 24.8 25.9 Dividend paid (996) (878) (1,090) (1,230) (1,355) ROA (%) 14.9 13.0 15.8 17.0 17.8 Share issue 0 4 6 0 0 Financing cash flow (3) (1,408) (238) (1,234) (1,359) Net change of cash flow 986 341 583 321 574 estimates Page 4
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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