Investment Summary

Anta is a leading sportswear player in PRC. During previous three quarters, Anta delivered strong results and Q4 performance is expected to maintain strong, given more festival promotions and online shopping festival to boost sales. Previously, Anta announced potential acquisition of Amer Sports, a Finnish-based leading sportswear producer, together with a PE fund, which will enrich Anta's product portfolio further. We maintain TP HKD47.3. (Closing price at 19 Oct 2018)

Company Business

Q3 results beat expectation. In Q3, retail sales of Anta biz recorded mid-teens growth, while sales of other bizs (excluding brands newly joined to the Group) recorded 90%-95% yoy growth. According to Mgt, monthly sales per Anta store increased by 10% yoy to around RMB230k and that of Anta Kids rose from RMB110k to RMB120k. For Fila, due to effective adjustment especially in large stores, monthly sales per store was up by around 20% to RMB600k in Q3. On Descente, the product mix was improved given more thin dress was provided to cater for summer needs, boosting sales.

Proposed acquisition will affect dividend paid out but enrich brand mix. In Sep, Anta issued a takeover bid to a Finnish sporting goods giant, Amer Sports, for a cash stake of EUR40 a share, in conjunction with a private equity fund Fountain Vest. Amer is a Finland-based company engaged in manufacturing, marketing and marketing of sports equipment and footwear. Its products are sold through eight major brands, including Wilson, Salomon, Precor, Atomic, Mavic, Suunto, Arc`teryx and Louisville Slugger. The company conducts international business in more than 30 countries, with US, Europe and Japan as main market areas. In 2017, Amer's net profit fell sharply, mainly because of a one-off divestiture of intangible assets. In 2018, thanks to the recovery of the North American market and the strong growth in Asia Pacific region, operation results clearly recovered. Although the acquisition is still uncertain, but once it succeeds, Anta's brand line will be further extended, and it will be an important step to enter the international sports market. However, management indicated that the next two or three years dividend paid-out may be reduced to ensure acquisition funds required, but it will recover gradually in future.

Q4 results are expected to be good. Second half is usually peak season for retail industry. Moreover, large e-commerce promotion activities and festival promotions are also expected to boost Q4 sales. We highlight that Fila launches a sub-brand Fila Youth and continuously improves its store performance, meanwhile, Descente is expected to deliver better results in winter sports season. We are optimistic about overall Q4 results.

Valuation & Risks

We maintain target price HKD47.3: Projected EPS is RMB1.47/1.84 in 18E/ 19E and target price is maintained as HKD47.3. Risks include: Rising selling and R&D expenses; Sluggish retail market; Inefficiency resulting from so many brands under operation.

Financials

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