Solid 4Q23 results in line with our expectation
- Anta reported that its 4Q23 retail sales rose by high teens for Anta, 25-30% for Fila and 55-60% for other brands (e.g. Descente and Kolon), in line with our estimates.
- Both its inventory and discount levels remained healthy in 4Q23, with the inventory-tosales ratio for Fila and Anta remaining below 5x.
- The company announced retail sales growth in a high single-digit for Anta, a high teen for Fila and over 60% yoy for other brands in FY23.
- We reiterate our Add rating with an unchanged DCF-based TP of HK$134, as we believe Anta has the potential to further improve its store efficiency and margins.
4Q23 retail sales in line with our expectation
Overall 4Q23 retail sales were in line with our estimates, leading to satisfactory full-year results. Management today disclosed retail sales growth figures for its brands in 2023 – a high single-digit for Anta, a high teen for Fila and over 60% for other brands. By sub-brand, Anta core achieved growth in high teens while Anta kids achieved 20-25% growth for 4Q23; Fila core, kids and fusion registered sales growth of c.30%, c.25% and low teens in 4Q23. Descente and Kolon achieved retail sales growth of 50-55% and 65-70% yoy respectively in 4Q23, driven by winter outdoorwear and rising snow/ice leisure activities. Inventory for Anta and Fila stayed healthy at below 5x at end-4Q23, and management saw sequential improvement in Anta and Fila’s inventory levels both qoq and yoy. Hence, its overall retail discount level had narrowed by end-4Q23. The 1% pt deeper online discount for Anta brand was due to promotions during the 11.11 online festival (20 Oct – 11 Nov) in 4Q23. We expect the sales growth momentum to continue for Anta Group in 1Q24F, with reasonable deceleration due to a high base in 1Q23.
FY23 retail sales achievement in line with guidance
The FY23 retail sales strengthens management’s confidence it has achieved its double-digit retail sales target for the year, driven by 1) a low base effect, 2) continued strong online sales momentum for Fila, and 3) strong sales momentum for Descente and Kolon. We keep our FY23F growth forecast at 15.5% for revenue and 25% for net profit. For FY24F, although the economic downturn in China could dampen overall consumption, we believe the trend of outdoor sportswear and equipment purchases would continue. We keep our FY24F growth forecast of 15.6% for revenue and 16.8% for net profit.
IPO of Wilson tennis racket maker Amer Sports on track
On 4 Jan 2024, 52.7%-owned Amer Sports (Amer) filed an IPO application, in which it disclosed that its revenue rose 30% yoy to US$3.1bn in 9M23 and a net loss of US$114m for 9M23 due to higher finance cost. It plans to use its IPO proceeds to pay a portion of its outstanding borrowings under revolving facilities (US$1.4bn). We note that in 9M23, among the Amer brands, Arc’teryx’s saw robust sales growth of 65% yoy, while Salomon’s sales rose 35% yoy due to rising demand for outdoor sportswear in greater China and globally. According to Bloomberg news, Amer is targeting IPO proceeds of more than US$1bn in the US and the listing could value it at US$10bn. If we assume full-year revenue growth of 30% to US$4.7bn in FY23F, this implies a potential P/S multiple of 2.1x. Anta acquired a 52.7% stake in Amer in 2018 for €4.66bn (US$5.2bn). In our view, Amer’s successful IPO would help Anta realise a healthy investment gain.
Our DCF-based TP of HK$134 remains unchanged
We retain our FY23-25F EPS forecasts and DCF-based TP of HK$134 (WACC: 9.7%, terminal growth: 3%). We keep our Add call as we believe Anta Group has the potential to improve its store efficiency and margins over the next 3-5 years. Re-rating catalysts are earlier-than-expected Amer IPO in FY24F and better 1Q24 retail sales. Downside risks: 1) weak macro, hurting demand for its sportswear, 2) keen competition, which may lead to more discounts and dilute margins, and 3) more A&P expense, impacting net profit.
