Company Reports

Narrow-moat Anta’s second half mildly exceeded our expectations, and management maintained its 2024 guidance, which falls roughly in line with our estimates. We fine-tune our near-term forecasts and maintain our HKD 141 per share fair value estimate. We continue to view Anta shares as undervalued.

We maintain our fair value estimate on Anta after its latest fourth-quarter retail sales report, which showed solid performance in line with expectations. The company remains optimistic about the full-year profitability, though guidance for 2024 is still on hold until the full-year results are published in March. The big news from this update is the plan to separately list its joint venture Amer, owner of brands such as Arc'teryx, Solomon, and Wilson. We view the listing as value-neutral to shareholders as most of the IPO proceeds will be used to pay down debts. Still, additional disclosures will allow investors to better assess Amer’s long-term outlook. We continue to view Anta’s shares as undervalued.

We maintain our HKD 141 fair value estimate for narrow-moat-rated Anta after its 2023 investor day reinforced our positive long-term thesis. Anta offered upbeat financial targets for the next three years, including midteens annual revenue growth which is slightly ahead of our forecasts. The firm expects its Fila business to grow at double digits annually, which we are skeptical about, but the focus on expanding the brand's addressable market is positive.

We maintain our fair value estimate for Anta following its report of in-line third-quarter sales. Management kept its 2023 guidance, which is comparable with our forecast. We continue to view Anta shares as undervalued, trading at a 35% discount to our fair value estimate of HKD 141.

Narrow-moat Anta delivered strong first-half 2023 earnings, featuring revenue up 14% year over year and adjusted operating profit up more than 40%. While these numbers are ahead of Refinitiv consensus estimates, they are in line with our forecasts. Management maintained its 2023 guidance while acknowledging weaker sales in July and August.

We believe that Anta's multibrand portfolio, which covers a range of consumer segments from mass-market to ultra-premium, provides an opportunity for the company to capture a growing share of the flourishing sportswear market. As China's largest homegrown sportswear brand, Anta initially established a reputation for value-for-money products targeted at the midmarket. However, the group's core Anta brand, which contributes to approximately 50% of total revenue, is now expanding its reach in lower-tiered Chinese cities as a reasonably-priced alternative to more expensive international brands such as Nike and Adidas. With economic growth and improving affordability in China, we believe Anta will benefit as consumers trade up from lower-end domestic alternatives to its products, while a portion of its customers will eventually trade up to costlier brands.

We maintain our fair value estimate on Anta 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.

Narrow-moat Anta Sports' second-half 2022 results were better than our and the consensus estimates. Operating profit came in at CNY 5.4 billion, beating Refinitiv's estimate by 15% and representing a year-over-year increase of 7%. With COVID-19-related challenges now in the rearview mirror, 2023 is set to be a strong recovery year for Anta. As we fine-tune our near-term forecasts, our fair value estimate of HKD 141 is unchanged. We view the shares as undervalued, trading at a 30% discount to our fair value estimate at the close of trading March 21.

We believe Anta's multibrand portfolio, which covers consumer segments from mass-market to ultra-premium, should allow the company to capture a rising share of the booming sportswear market.

Anta Group reported weak fourth-quarter retail sales, but the lackluster performance was caused by China's zero-COVID-19 policy, which is no longer in effect. With some of the largest cities already past the peak of infection, we expect Anta's sales to gradually start rebounding in the first quarter of 2023. We cut our forecast for fourth-quarter 2022 earnings to account for more severe short-term margin pressure caused by the COVID-19-related store closures. Given we're only making an earnings adjustment to last year's numbers, we maintain our fair value estimate of HKD 141. We view Anta shares as undervalued, trading at a 25% discount to our fair value estimate.

2023 will be a better year for Chinese sportswear manufacturers and retailers, and we see some attractive buying opportunities. These firms have struggled with many issues in 2022, including sporadic lockdowns in China, excess inventories, a more promotional environment, logistical challenges, and tough comparisons against 2021. But as China scraps its zero-COVID-19 policy, stores will reopen, and easing income pressure and an improving consumer mood will also lead people to spend more on discretionary items. This means consumption demand for sportswear will increase, and inventory levels should improve.

Narrow-moat Anta reported third-quarter retail sales numbers in line with our estimates, but growth was front-loaded in July and August, while sales in September came below management's expectations. Given rising travel restrictions across China, management struck a cautious tone for the fourth quarter and quarters beyond. Moreover, inventory levels remain high, so Anta announced that it would need to discount merchandise to clear inventory, meaning margins will be negatively affected. We lower Anta's fair value estimate to HKD 141 per share from HKD 159 to reflect the recent depreciation of the Chinese yuan against the Hong Kong dollar. Although shares are trading at a discount to our fair value estimate, we believe continued profitability concerns could create a more attractive entry point. We recommend investors wait until the upcoming promotional environment to be fully priced before buying Anta.

Anta started out China’s largest homegrown sportswear brand with a reputation for value-for-money products targeted at the midmarket. The group’s core Anta brand, contributing to approximately 40% of total revenue, is set to expand its presence in lower-tiered Chinese cities as a reasonable alternative to expensive international brands such as Nike and Adidas. While a portion of its customers will eventually trade up to these costlier brands, economic growth and improving affordability in China will also allow Anta to benefit as others trade up to its products from even lower-end domestic alternatives.

There were no surprises in Anta's first-half 2022 results, because the company already gave early indications back in July. Based on management's near-term guidance, we lifted our revenue and net profit forecast for the full year to reflect a faster-than-expected pace of recovery and solid cost management. We maintain an HKD 159 fair value estimate for Anta as our long-term forecast remains intact. We view the firm's shares as undervalued, trading at 40% discount to our fair value estimate.

Narrow-moat-rated Anta reported second-quarter 2022 retail sales numbers above our estimates. Most notably, Fila outperformed our expectations despite severe lockdowns in parts of China. Even though management did not provide any near-term guidance, they indicated that sales resumed growth in June. Considering Anta’s better-than-expected second-quarter performance, we slightly tune up our forecasts for 2022, but maintain longer-term assumptions unchanged.

Anta started out China’s largest homegrown sportswear brand with a reputation for value-for-money products targeted at the midmarket. The group’s core Anta brand, contributing to approximately 40% of total revenue, is set to expand its presence in lower-tiered Chinese cities as a reasonable alternative to expensive international brands such as Nike and Adidas. While a portion of its customers will eventually trade up to these costlier brands, economic growth and improving affordability in China will also allow Anta to benefit as others trade up to its products from even lower-end domestic alternatives.

Narrow-moat Anta posted decent operating data for the first quarter, but management painted a bleak picture for the second quarter as lockdowns severely impacted demand. We lower our 2022 revenue growth forecast to 10% from 19% to reflect short-term headwinds. We do not expect sales to normalize until the fourth quarter of 2022. Lower sales coupled with high fixed costs (more than 50% of operating expenses) will cripple margins, so we now expect net profit to decline by 3% this year. That said, we maintain our fair value estimate at HKD 171 as our long-term assumptions remain largely unchanged. We would treat volatility in the stock as an opportunistic entry point, but the absence of major changes to China’s zero-COVID-19 strategy could lead to further downward revisions to our near-term estimates.

There were few surprises in narrow-moat Anta’s 2021 full-year results because the company had announced some of the numbers in January. We slightly lower our assumptions for 2022 to account for the impact of current COVID-19 lockdown policies in China. We would treat volatility in the stock as opportunistic entry points, but we acknowledge further lockdowns could lead to downward revisions to our near-term estimates. That said, our base case assumes that most lockdowns will end by summer, and sales should recover following the reopening of malls.

Narrow-moat Anta's shares fell 8% following Norway's sovereign wealth fund, or NBIM's, announcement to exclude close peer Li Ning from its investment portfolio due to "unacceptable risk that the company contributes to serious human rights violations." With Li Ning shares down 11% and Anta down 8%, there are growing fears of more investors adopting similar exclusion measures on other Chinese apparel firms like Anta. Since today's decline in share price doesn't reflect changes to Anta's business fundamentals, we would treat volatility in the stock as an opportunistic entry point. The firm's shares are trading at a 50% discount to our HKD 171 fair value estimate, and we still believe the firm will continue to deliver strong earnings growth ahead thanks to its strong portfolio of premium sportswear brands.

Narrow-moat Anta delivered strong retail sales numbers for the fourth quarter of 2021. The group also announced preliminary full-year earnings coming above our estimate, suggesting that the company did not give away profitability to achieve growth. We continue to feel comfortable about the business's long-term position. There is a risk that sales growth will slow over the near term, but that scenario will most likely be caused by macroeconomic factors in China instead of the company's own mis-steps. We fine-tuned our near-term forecasts but maintained our fair value estimate for the firm at HKD 171. After the recent share price pullback, Anta's valuation multiple has returned to the prepandemic level, trading at just 25 times 2022 Pitchbook consensus earnings. We see this as a good opportunity to buy shares of this long-term winner in China's fast-growing sportswear market.