Winners in a new context
Double-11 presales discounts indicate faster destocking process, while favourable base should support double-digit recovery in 4Q23. International players like Nike and Adidas have been clearing their excess inventory accumulated during the Covid-19 pandemic. Nike’s partner-owned inventory is at healthy levels, while Adidas is on track to complete clearance by the end of FY23. Domestic players noted slight rises in inventory turnover in 3Q on a q-o-q basis, but remains more favourable y-o-y. With the upcoming Double-11 festival, we analyse data on pre-sale discounts and found earlier promotional periods and steeper discounts offered to accelerate destocking, paving way for a better 4Q23 and healthier 2024.
Delivering value proposition and not giving up on premium offerings. Looking forward into FY24E, the focus remains on delivering value while upholding premium offerings. Anta brand, Li Ning, Xtep, and 361 Degrees are poised to leverage on the localisation of expertise and wider pricing strategies to sustain teen-level top-line growth. We anticipate higher marketing investments for the Paris Olympics 2024, particularly for Anta. Key drivers include higher emphasis on footwear category which holds longer product cycles and customer loyalty; a buildout of flagship stores to provide a better shopping experience and added services / offerings like outdoor wear (e.g., skiing, camping, and hiking); solo sports such as running, weight-training, yoga and widening pricing range to cater to spending-conscious consumers.
Prefer Anta. We expect further M&As to also beef up growth prospects amongst companies with solid net cash positions, especially for those with successful execution track records, such as Anta. We expect Nike and Anta could continue to outperform in 4Q, thanks to concise inventory control. Anta is trading at 20x FY24E PE with favourable risk/reward profile.