Anta Earnings: Management Maintains 2023 Outlook Despite Decelerating Sales Growth

We maintain our fair value estimate on Anta 02020 following its report of in-line second-quarter sales. Management maintained its 2023 guidance and provided a timeline on the launch of Kyrie Irving’s product lines following its recent signing of the NBA star. We view the cooperation with Irving as a part of the Lead to Win initiative announced at 2021 investor day, which we have already accounted for in our valuation model. We continue to view Anta’s shares as undervalued, trading at a 40% discount to our fair value estimate of HKD 141.

In the second quarter of 2023, Anta Group recorded about a 19% year-over-year growth in retail sales. By brands, the namesake Anta brand grew just 7%, while Fila grew by about 18%. The remaining premium outdoor brands again delivered more than 70% growth.

Even though the year-on-year growth numbers look decent, it is worth noting that sales were coming off a very low base from the second quarter last year, when the Shanghai lockdown took place. Growth has decelerated compared with the first quarter on a two-year stack. Management has rightly pointed out that the sales slowdown was partly due to cautious consumer spending amid a tepid economic recovery. But we would also attribute the core brand’s underperformance to the fading nationalist buying frenzy that started in March 2021. With Nike NKE well on its way to a comeback in China, we expect Anta Core to grow at a CAGR of 12% over the next five years.