Investment Summary

Anta Sports announced the company's annual results for the year ended December 31, 2020 on March 24. Revenue in 2020 recorded an MSD growth Yoy to CNY 35.51 billion, which was lower than our expectation (previous expected: CNY 36.27 billion). The GPM increased by 3.2 ppts to 58.2% Yoy, which was better than our expectation (previous expected: 55%), mainly due to the increase in GPM of Anta's DTC transformation during the year and the increase in the proportion of revenue from FILA. Affected by the epidemic in Europe and the United States, the JVs suffered a loss of approximately CNY 600 million. The net profit attributable for the year was CNY 5.16 billion, a Yoy decrease of 3.4%, which beat our expectations (previous expected: CNY 4.77 billion). The annual dividend per share was 68 HK cents, and the dividend payout ratio remained at 30%.

Anta's annual revenue was CNY 35.51 billion, an increase of 4.7% Yoy. In terms of brand revenue, Anta's main brand revenue was CNY 15.75 billion, a Yoy decrease of 9.7%, while FILA's revenue surpassed Anta's main brand for the first time at CNY 17.45 billion, an increase of 18.1% Yoy. Revenue from other brands was CNY 2.31 billion, an increase of 35.4%. From the perspective of revenue structure, the revenue from Anta/FILA/other brands accounted for 44.3%/49.1%/6.6%, and the change was -7.1/5.6/1.5 ppts.

The gross profit for the year was CNY 20.65 billion, an increase of 10.7% Yoy. The overall GPM was 58.2%, which was better than our expectation (previous expected: 55%). This was mainly due to the fact that we originally expected the company to give discounts due to the epidemic during the year to affect gross profit, however, the company's DTC transformation of Anta's main brand led to an increase in GPM. In addition, the increase in the proportion of FILA business income, which has a higher GPM, also led to an increase in the company's overall GPM. From the perspective of brand classification, the GPM of Anta and other brands have improved, increasing by 3.4 ppts/4.1ppts to 44.7%/65.9%, but FILA's GPM was affected by the epidemic, which decreased slightly by 1.1ppts to 69.3%.

Focus on reshaping the main brand in the future, and the performance in the Q1 exceeded expectations

In 2021, the company will continue to carry out retail transformation and channel optimization on Anta's main brand, and will rebrand with the help of the 2021 Olympics and the 2022 Winter Olympics, with the new domestic products as the new positioning of “technology-led mass professional sports”. To improve the brand image, the company plans to increase the promotion expense rate by 1-3 ppts and use it for both Olympic marketing. In the operating situation for the first quarter of 2021, the turnover of Anta/FILA/other brands increased by 40%-45%/75%-80%/115%-120%, respectively, and the offline turnover of Anta's bulk goods and children increased is 35%-40%/45%-50% Yoy. There still an LDD growth when compared with 2019. Anta's retail discount and inventory-to-sales ratio in 1Q21 were 73% and 5x, respectively, which was a significant improvement over 1Q20 and better than 1Q19; while FILA's retail discount and inventory-to-sales ratio in 1Q21 were 78%, respectively. The discount of 6x has returned to the pre-epidemic level.

Valuation and investment advice

The company's overall revenue last year was slightly lower than our previous expectations, but the company's DTC transformation during the period has effectively improved the company's profitability and offset the impact of the epidemic. The company's DTC transformation of the main brand is progressing well. Last year's performance reflects that the DTC model has effectively improved the company's profitability. In terms of future development, the company plans to rebrand the main brand and its profitability is expected to be further improved in the future. The continued high growth of FILA under the epidemic also confirms the development potential of the brand. Recently, the company's controlling shareholder plans to place shares at a discount of up to 7.7%. With reference to the company's past history of allotment and reduction, it is expected that the company's short-term stock price will be under pressure, but the company's long-term investment logic remains unchanged, focusing on the company's main brand channel upgrade. The coming growth and the cultivation of new brands. In order to further reflect the cost of rebranding and promotion, we adjusted the company's 2021/2022 period expenses, and raised the sales expense ratio by 2ppts to 31% (previous: 29%). Reduce the company's 2021/2022 EPS to CNY 2.88/3.77 (previous: CNY 3.08/4.12). It is estimated that the company's EPS in 2021/2022/2023 will be CNY 2.88/3.77/4.64. Taking into account the company's future brand image enhancement, DTC's transformation will further enhance its profitability. The company's target P/E is revised up to 45x FY21 (previous: 40x FY21), and the 12-month target price is raised to HK$152.24 (previous: HK$144.94) corresponding to 2021/2022/2023 45.00x/34.31x/27.91x expected P/E, maintain the Accumulated rating.(Closing price as of 29 Apr)

Risk

1) The newly acquired brands grow slower than expected

2) Rebranding has not been recognized by consumers

Financials

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