2Q22 performance slightly better than expected
- The 2Q22 yoy retail sales drop for the Anta and Fila brands was in the mid-single digits and high-single digits, respectively, slightly better than we expected, while retail sales for Anta’s other brands maintained positive yoy growth of 20–25%.
- 2Q22 yoy online sales growth of the Anta brand was in the high-single digits, driving double-digit yoy growth in 1H22F.
- We now expect Anta brand sales to achieve mid-single-digit yoy growth in 1H22F, and Fila brand sales to drop by low-single digits yoy. We expect both brands to see a good recovery 2H22F. Management said June sales growth was back from 10% to the low teens yoy.
- For the first time, Anta announced its carbon balance plan for 2030 and 2050.
- Reiterate Add for Anta with a new DCF-based TP of HK$144, as we are positive about the large growth potential of its DTC model and mix upgrade trend.
2Q22 sales performance slightly better than expected
1H22 retail sales growth for the Anta brand and other brands was in the mid-single digits and 30–35% yoy, respectively, while the retail sales drop for the Fila brand was in the low single digits yoy, as the pandemic hit top-tier cities, where most of Fila’s stores are located. Anta saw a robust sales recovery in Jun, with sales growth returning to double digits yoy.
Accelerating growth of the Anta brand with the Lead to Win plan
2Q22 online sales growth for the Anta brand was in the high-single digits yoy, plus 50% yoy growth in 2Q21, driving double-digit yoy online growth in 1H22F. Retail sales of Anta Kids remained positive in 2Q22. Compared with 2020, the sell-through rate of the Anta brand grew by over 30% in both 2Q and 1H. Anta enjoyed higher brand recognition and a better product mix in 2Q22 thanks to the ‘Lead to Win’ plan launched a year ago. The 2Q22 discount rate was about 75%, improving both qoq and yoy, but the inventory to sales ratio increased qoq to slightly over five times. In 2H22F, Anta said during the call it will continue to stream its low-performing stores and continue its direct to consumer (DTC) reform
Better-than-expected 2Q22 performance of the Fila brand
Because Fila stores are located mostly in top-tier cities, which were more seriously hit by the Omicron outbreaks, we previously expected the yoy sales drop in 2Q22 to be 15–20%, but Fila’s actual performance of a high-single-digit drop was better than we expected. About 20% of Fila stores were temporarily closed during the pandemic lockdown period. But Fila enjoyed a significant recovery in the Jun 18 online shopping festival and achieved double-digit yoy sales growth in Jun. Compared with 2020, the sell-through rate of the Fila brand grew by 50% in 1H. Fila’s offline discount was over 75%, and its online discount was about 60% in the quarter. Fila’s inventory level, affected by the pandemic, increased about a month to slightly above seven times, higher than the normal level of six times in 2Q21.
Reiterate Add with a new DCF-based TP of HK$144
We raised our FY22–24F net profit forecast by 1.3%, 0.8% and 1.4%, respectively, to reflect Fila’s better-than-expected sales recovery. We adjusted up our DCF-based TP to HK$144 (risk-free rate: 4.0%, beta: 1.0, WACC: 9.7%) as we are positive on Anta’s long term growth because of the large potential of its DTC model and mix upgrade trend. The key risks are a longer COVID-19 impact that impacts the topline growth and a higher expenses ratio that hurts margins