On the verge of overtaking
- Multi-brand strategy to capture fast-growing sports industry; we forecast earnings CAGR of 15% in FY21-24E
- With the resurgence of COVID-19 impacting consumer sentiment in 1H, we expect 2H22 to see better reprieve ahead
- Share price has corrected 50% from peak, now trading at 21x FY23F PE; BUY with TP at HK$125
Investment Thesis
Hiccup in near-term growth but medium-term growth to remain solid.
Despite the temporary drag from COVID resurgences across different regions in China, Anta Sports (Anta) should see decent recovery post lockdowns, given its strong market position, especially for Fila which has higher exposure to top-tier markets that were more affected by pandemic control measures. Jan-Feb sales saw a strong start in both brands, partly helped by a boost from the Winter Olympics, hence providing some cushion in the more challenging environment since March.
Valuation attractive, with recovery ahead.
A slowdown in 1H22 was well expected due to the lockdown measures. Anta is now trading at 21x FY23F PE, translating to a 30% discount to its three-year trading average. We forecast Anta earnings to decline 3% in FY22, before rebounded by 33% in FY23E, driven by a recovery in same store sales growth with 3-year sales CAGR estimated at 14% (Anta: 13%; Fila: 12%; other brands: 35%). Meanwhile, the company’s net cash stands at Rmb11bn+, supporting a higher payout of 46%.
In good position to further gain market share.
Already the second largest in China, we believe Anta is well placed to gain market share in the sportswear industry, and on track to overtake Nike as the leading sportswear player in China by sales in end-2023 based on our estimates. Its multi-brand portfolio provides not only diversification but also growth drivers in the medium to long run.
Valuation:
Our target price of HK$125 is based on DCF valuation, or 30x FY23F PE, equivalent to its three-year trading average.
Where we differ:
We expect Fila’s performance to see gradual improvement with steady improvement ahead.
Key Risks to Our View:
COVID resurgence in China/overseas, slower economic growth, and/or weaker-than-expected performance from core brands.