2023 Sales Meet Expectations; Expect Amer Spin-Off And Separate Listing To Happen Before Mar 24
Anta’s 2023 sales met expectations, with discounts and inventories remaining healthy and manageable. Management is confident that Anta will achieve a net profit growth of at least 28% in 2023. We expect Amer’s spin-off and separate listing to be completed no later than Mar 24. After the IPO, Amer’s debt burdens will be significantly lowered. Anta remains our top pick in the sportswear sector. However, considering the industry headwinds, we cut its target price to HK$109.60. Maintain BUY.
WHAT’S NEW
• Anta announced 4Q23 operational updates.
STOCK IMPACT
• 2023 retail sales met expectations; 2023 earnings to grow at least 28% yoy. In 4Q23, retail sales of Anta brand/FILA/all other brands recorded high-teens%, 25-30%, and 55-60% yoy growth respectively, thus bringing full-year sales growth to high-single digit%, highteens%, and 60-65% respectively. This set of sales results met the company’s annual targets despite the weak consumption recovery. Specifically, FILA demonstrated better-than-expected sales momentum (high-teens% growth vs targeted teens% growth), showing FILA’s great brand attractiveness and the company’s strong execution. With the set of
satisfactory sales results, management is confident that the company will achieve at least Rmb9.7b net profit in 2023, implying 28% yoy growth (2H23: 25% yoy net profit growth).
• Inventories improved in 4Q23; Anta brand discounts deepened slightly but manageable. Although the industry has been experiencing destocking since 3Q23, Anta still maintained relatively stable discounts and its inventories were still healthy. In 4Q23, Anta’s offline discount remained stable qoq at 28% off, while online discount deepened by 1ppt qoq to 49% off, due to the more intense competition during the Double 11 shopping festival in 2023.
FILA’s discounts improved slightly qoq with online discount at <40% off and offline discount at 23% off. By the end of 4Q23, inventory turnovers for both Anta brand and FILA slightly improved qoq to below five months (vs end-3Q23: Anta brand at around five months and FILA slightly above five months), which were quite healthy.
• Expect Amer spin-off and separate listing to be completed before Mar 24. Amer Sports (Amer) has filed a registration statement with the US Securities and Exchange Commission (SEC). According to the statement, Amer achieved revenue of US$3,053m in 9M23, implying 30% yoy growth. By brand, Arc’teryx/Salomon/Wilson achieved revenue growth of +65%/+35%/+10% yoy, contributing 31%/31%/28% of total revenue. By channel, wholesale/ E-commerce/DTC recorded revenue growth of +20%/+47%/+66% yoy, contributing 67%/15%/18% of total revenue. Amer recorded a net loss of US$114m in 9M23 mainly on the heavy interest payments incurred for the acquisition. However, management expects Amer’s loan burdens to be alleviated, and to see savings on interest payments after the IPO, as US$2.6b (JVCo Loan 1) will be converted to equity and US$1.4b (JVCo Loan 2) that matures in Mar 24 will be repaid with proceeds from the IPO.
Hence, we estimate that the IPO will be completed no later than Mar 24. After the IPO, Amer’s interest-bearing debts will decline to US$1.8b. We expect Amer to maintain strong growth momentum going forward, and contribute ~Rmb550m-600m profit to Anta in 2024 (based on the assumption that Amer is still considered as a JV of Anta, using the equity method).
EARNINGS REVISION/RISK
• Fine-tune 2023 earnings by 2% and keep 2024 earnings forecasts unchanged. For 2023, we remain our revenue and gross margin forecasts unchanged, while we raise our SG&A estimate by 0.5ppt to reflect the higher A&P fees due to rising industry competition. Thus, our earnings estimate is cut by 2%. For 2024, we remain our revenue estimate largely unchanged, but cut our gross margin estimate by 0.1ppt to reflect the ongoing industry deepening discounts. We also raise our SG&A estimate by 0.5ppt to reflect the higher A&P fees due to the Olympics. We estimate that Amer will contribute Rmb550m in JV gains.
Thus, our earnings estimate remains unchanged.
• Risks. a) Later-than-expected Amer IPO; b) lower contribution from Amer; c) lower-than-expected sales recovery; d) higher A&P expenses.
VALUATION/RECOMMENDATION
• Maintain BUY but cut target price by 14% to HK$109.60. Anta’s sales performances in 2023 met expectations, with inventories and discounts remaining at healthy and manageable levels. We maintain Anta as our top pick in the sportswear sector as we like its diverse brand strategy, and management’s strong execution and good track record. However, for the overall sportswear sector, the negative sentiment on the industry’s ongoing destocking and peers’ weaker-than-expected results may continue to weigh on the sector’s share prices in the short term.
We revise up the WACC to 14.1% from 11.4% to reflect the industry’s higher risk premium, and we roll over the target price to 2024. Our new target price is HK$109.60, 14% lower than the previous target price. The stock currently trades at 15.1x 2024F PE.
