3Q22 operating data in line
- Anta reported that Anta brand 3Q22 retail sales grew by mid-single digits yoy, slightly below our expectation, due to the Covid resurgence in Sep.
- The Fila brand’s retail sales grew by low-teens yoy in 3Q22, up from high-single digits yoy in 2Q22, driven mainly by strong online sales growth of 65% yoy in 3Q22.
- The Descente and Kolon brands achieved quite strong retail sales growth of 40-45% yoy in 3Q22, supported by the increasing popularity of outdoor activities, like camping.
- Management maintains its previous guidance for 2H22F, but has become more conservative for 4Q22F and FY23F, due to the Covid situation and weak macro.
- We reiterate Add with an unchanged DCF-based TP of HK$136.
Anta brand’s 3Q22 retail sales slightly below our expectation
Anta brand’s 3Q22 retail sales grew by mid-single digits yoy, in line with that in 2Q22, but slower than the high-teens yoy growth in 1Q22. The 3Q22 growth was slightly below our expectation, due to the Covid resurgence in Sep. For the Anta brand, retail sales of both Anta mass market and kids products grew by mid-single digits yoy in 3Q22, and online sales grew by high-single digits yoy, faster than the offline channel. The inventory turnover period was higher than 5x by the end of Sep, slightly higher than the normal level; management aims to return it to the normal level by end-FY22F. The discount level did not increase yoy for Anta mass market products, but the discount rate for Anta Kids improved by 2–3pts yoy in 3Q22, which should help Anta maintain a stable gross margin.
Fila brand 3Q22 retail sales in line with our expectation
Retail sales of the Fila brand grew by the low teens yoy in 3Q22, up from high-single digits yoy in 2Q22, driven mainly by strong online sales growth of 65% yoy in 3Q22. Although the Sep Covid resurgence in large cities, like Shenzhen and Chengdu, had a negative impact on Fila’s offline stores, strong online sales growth helped the brand achieve better growth than that of its international peers. In Sep, Fila hosted a series of online marketing activities with Tmall, and the company strengthened its cooperation with Douyin and Little Red Book for live-broadcasting activities. Currently, Fila’s inventory turnover is 7–8x, also higher than its normal level, but management aims to reduce it to the normal level by the end of FY22F. The Fila brand increased its discount rate in 3Q22, to 74–75% for the online channel and 85–86% for the offline channel.
Strong 3Q22 growth for the Descente and Kolon brands
Driven by strong growth of outdoor activities, Descente and Kolon brands achieved over 35% and 55% yoy retail sales growth in 3Q22, better than we expected. Kolon brand returned to positive earnings in 1H22, and mgmt. expects its profitability to continue to improve in 2H22F.
The 4Q22F outlook has become more conservative
Owing to the current weak macro situation and still tight Covid policy, management has become more conservative for the 4Q22F and FY23F outlook. For the upcoming Nov 11 online shopping festival, Anta will make sales growth the first priority and increase its discount level a bit to reduce its inventory. Management said its Amer business was in line with expectations in 3Q22 with profitability expected to further improve.
Reiterate Add with an unchanged DCF-based TP of HK$136
We maintain our earnings forecasts for Anta. For 2H22F, we expect sales to grow by 14.5% yoy (1H22: 13.8%) and NP to rise by 18.0% yoy (1H22: -6.6%). We reiterate our Add rating for Anta, as we believe Anta still has large room to improve its market share and margins in the long run. The key positive catalyst will be better-than-expected exps. control. Key risks include 1) weaker-than-expected demand and 2) deeper discounts in more competitive environment. We used the DCF valuation for our target price.