(2020 HK)

Rating BUY Maintain Continue to deliver multi-brand strategy Target price HK$39.64 From HK$36.87

Current price HK$33.30 Upside:19.1%

3Q17 RSV growth slow down higher comps, ANTA core brand driven by online and kids 25 October 2017 ANTA core offline continue to deliver a stable growth (mid-single digit yoy vs. 2Q17: mind single digit and 1Q17: low-single digit) in 3Q17, ANTA’s 3Q17 RSV growth decelerated to mid-teens yoy due to higher comps in 3Q16 (which came in Hayman Chiu at low-double digit). Though the 3Q17 RSV growth was slower than 2Q17 (vs. [email protected] 20-30% due to lower comps in 2Q16), the growth in RSV was still driven by stable (852) 2235 7677 retail discount, robust ANTA online sales (up >50% yoy), and kids (up >30% Yoy).

We expect 2H17 ANTA’s core brand retail sales value would be able to deliver at least low-double digit growth even though a higher comps in 4Q16 (high-teens). Trading Data We continue to expect the high margin segment (~25-30% of sales), and 52-Week Range (HK$) 35.00/20.27 ANTA kids (~15% of sales) and ANTA brand online platform (~low teens of sales) 3 Mth Avg Daily Vol (m) 5.58 continue to drive sales growth and GM expansion. No of Shares (m) 2,720.5 Market Cap (HK$m) 91,272.8 Non-ANTA brand continue to perform, multi-brand strategy continue to Major Shareholders (%) S.Z. Ding and Asso deliver on KingKow acquisition and Kolon JV setup completed (51.19%)

Auditors KPMG In 3Q17, Non-ANTA brand posted a 50-60% Yoy increase in RSV, thanks to continuous lower retail discount from FILA (which constitute ~96% of Non-ANTA Result Due FY17:Mar 2018 RSV), while sales from Descente was minimal. Company description ANTA announced the acquisition of kidswear brand KingKow (100% stake, which rumoured to be ~HK$66mn according to recent market news flow) to further Founded in 1994, ANTA Sports is one of the enrich kid’s product portfolio. Founded in 1998, KingKow, a mid-high end brand leading PRC players in manufacturing, trading targeting children aged 0-14 years old. KingKow currently owns 81 stores with and distribution of sporting goods, including sales ~HK$200mn, however, ~74% of the stores them was in China (which was footwear, apparel and accessories. As of June 30 unprofitable), it would take time for ANTA to ramp up KingKow’s China business. 2017, ANTA’s retail network comprises of 9,041

ANTA brand POS. ANTA also announced it has completed the formation of JV (50/50 split, US$40mn contributed) with Kolon Sports (No.1 Korean outdoor brand with 7 years exposure in China, currently ~200 stores in operation) ANTA plans to take Price Chart over the operation, which we believe would improve efficiency and turn around HK$ the loss-making position. As management previously target 50-60 store by 40.0 end-2017, we expect to see a more meaning picture/sales contribution from 35.0 30.0 Descente from FY18E. 25.0 20.0 Strong financial position provides ample room for M&A and a potential 15.0 10.0 one-off special dividend in FY17E 5.0

0.0

16 17 15

15 17 16

14 15 16

17 15 16

- - -

- - -

- - -

- - -

Jul Jul Jul

Oct Oct Oct

Jan Jan Apr Apr Apr ANTA’s strengthening profitability and working capital brings in a strong financial Jan position (1H17: ~RMB10bn net cash, ~13% of current market cap.), this provides sufficient capital for future investment/ M&A opportunities. From dividend payout Sources: Bloomberg, CIRL perspective, ANTA has been maintaining >60% payout ratio including special dividend in FY08-FY09 and FY12-FY16), as ANTA has listed in HKEx for 10 years (listed in July 2007), we expect a potential one-off special dividend would be declared in FY17E results (due March 2018) to rebate long term investors.

FY18E 16.6x ex-cash PE, Maintain BUY on solid fundamentals

We stick to our FY17E/18E EPS forecast on ANTA, and continue to see ANTA to deliver a 16.8% EPS CAGR in FY16-18E, driven by non- ANTA brand and e-commerce. Our current forecast has not priced in the contribution from KingKow and Kolon JV. We believe its FY18E 16.6x ex-cash PE still looks justified vs. international peers at 26.5x (~37% discount), given ANTA’s strong execution track record, potential M&As/ JV setups in prudent manner to adopt multi-brand strategy. We slightly raised ANTA’s TP from HK$36.87 to HK$39.64, implying 19.9x FY18E ex-cash PE (25% discount to international peers, vs. 30% discount in our previous reports), plus FY18E net cash (HK$3.80/share). We maintain BUY rating. Page 1 / 7

Exhibit 1: Earnings forecast for FY17E & FY18E earnings YearExhibit to Dec 1: (RMB mn) FY13A FY14A FY15A FY16A FY17E FY18E FY19E

Growth rate (%) Pork Revenue -4.5% 22.5% 24.7% 20.0% 21.8% 17.8% 18.2% EBITDAproducts 1.5% 28.9% 32.8% 18.9% 32.0% 20.5% 21.0% EBIT -4.5% 22.5% 24.7% 20.0% 21.8% 17.8% 18.2% sold in Net profit -2.1% 30.3% 20.5% 17.0% 31.0% 19.7% 20.5%

Fullysupermark diluted EPS -2.2% 27.8% 19.9% 16.7% 34.3% 19.7% 20.5% Marginset counters (%) Gross margin (reported) 41.7% 45.1% 46.6% 48.4% 51.0% 51.7% 52.3%

EBITDA 22.9% 24.1% 25.6% 25.4% 27.5% 28.2% 28.8% EBIT 21.5% 22.6% 24.2% 24.0% 26.1% 26.8% 27.4% Net margin 18.3% 19.4% 18.8% 18.3% 19.7% 20.0% 20.4%

Source: Company data, CIRL estimates

Exhibit 2: Major Assumptions for ANTA’s revenue and segment GM YearExhibit to Dec1: (RMB mn) FY13A FY14A FY15A FY16E FY17E FY18E FY19E SegmentPork Revene Shoesproducts 3,421 4,110 5,074 6,001 7,160 8,144 9,626 Apparel 3,574 4,451 5,592 6,886 8,605 10,488 12,479 sold in Accessories 286 361 460 459 490 518 539 Segmentsupermark Gross Margin Shoeset counters 44.5% 46.4% 46.2% 46.3% 48.2% 48.2% 48.2% Apparel 39.6% 44.5% 47.8% 51.0% 54.0% 55.0% 56.0% Accessories 34.8% 38.0% 37.5% 37.2% 39.3% 40.0% 40.5% Group 41.7% 45.1% 46.6% 48.4% 51.0% 51.7% 52.3% Source: Company data, CIRL estimates

Exhibit 3: ANTA’s retail sales value (RSV) growth slow down in 3Q17 Exhibit 1: 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 LiNing (Retail) flat mid-single low-single high single -ve mid-single flat -ve mid single digit Pork LiNing (Wholesale) flat mid-single low-single low single -ve mid-single low single -ve mid single digit LiNing (e-commerce) low 60s low 70s low 80s mid 90s low 50s mid 90s 30-40% (low 30's) products LiNing (blended) low-single digit high-single digit high-single digit high-single digit flat high-single digit -ve low single digit

sold in DongXiang N.A ------

supermark ANTA (SSSG) ------ANTA (ANTA brand retail sales growth) mid-single digit high-single low-double high-teens low-double 20-30% mid-double et counters-ANTA core offiline low-single digit low-single digit mid-single high-single low-single mid-single mid-single - ANTA core online >50% 30% >60% >50% >60% >50% 50% - ANTA kids >50% 30% >30% >30% >30% 20-30% 20-30% ANTA (non-ANTA brand retail sales growth) 50% 60-70% 50-60% 40-50% 50-60% 40-50%

Xtep +ve mid-single digit +ve mid-single digit +ve mid-single digit +ve mid-single digit +ve low-single digit +ve mid-single digit TBA

361 Degrees (retail sales growth) - - - - - high-single high-single Kids - - - - - high-single high-single

Sources: Company Data, CIRL

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Exhibit 4: ANTA launches ANTAUNI on online stores Exhibit 1:

Pork

products

sold in

supermark et counters

Sources: Company Data, CIRL

Exhibit 5: ANTA completed the set up of 50/50 JV with Kolon Sports Exhibit 1: Pork products sold in supermark et counters

Source: Kolon Sport website,

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Exhibit 6: ANTA acquired Kingkow to deepen their exposure in kids’ segment Exhibit 1: Pork products sold in supermark et counters

Source: Kingkow website,

Exhibit 7: ANTA’s profitability comparison with peers

Exhibit 1: bloomberg ROE (%) ROA (%) Net Gearing (%) FY16 code FY16 FY16 FY16 GM (%) OM (%) PM (%) Pork PRC - Sportswear peers

LIpr NINGoducts CO LTD 2331 HK 3.1 1.8 23.3 46.2% 4.8% 8.0% INTL 1368 HK 9.0 5.5 (64.8) 43.2% 16.6% 9.8%

361sold DEGREES in 1361 HK 8.7 4.2 (32.7) 42.0% 17.6% 8.0% HONMA GOLF LTD 6858 HK 29.0 18.0 (2.1) 59.0% 17.1% 16.0% HOSAsupermark INTL LTD 2200 HK 13.7 10.2 (61.0) 51.4% 26.2% 24.4% YUE YUEN IND 551 HK 11.8 7.4 (1.1) 25.1% 7.1% 6.3% POUet countersSHENG INTL 3813 HK 8.4 5.4 17.5 35.5% 5.7% 3.5% Average 12.0 7.5 (17.3) 43.2% 13.6% 10.8%

ANTA SPORTS PROD 2020 HK 24.5 17.8 (38.4) 48.4% 23.4% 19.4%

International - Sportswear peers NIKE INC -CL B NKE US 32.6 17.6 (27.9) 46.2% 13.9% 11.6% AG ADS GR 19.9 8.3 (4.0) 48.6% 7.7% 5.3% UNDER ARMO-C UA US 11.5 6.0 27.9 46.4% 8.7% 5.3% LULULEMON ATH LULU US 22.9 18.9 (48.8) 48.4% 17.9% 12.9% SE PUM GR 6.6 3.9 (18.7) 45.7% 3.5% 1.7% ASICS CORP 7936 JP 8.7 5.1 (0.3) 44.2% 6.4% 3.9% MIZUNO CORP 8022 JP 3.3 1.8 21.8 38.6% 1.5% 1.1% DESCENTE LTD 8114 JP 7.9 5.2 (27.9) 56.2% 7.6% 5.8% COLUMBIA SPORTSW COLM US 13.2 10.0 (34.0) 46.7% 10.8% 8.1% Average 14.1 8.5 (12.4) 46.8% 8.7% 6.2%

ANTA SPORTS PROD 2020 HK 24.5 17.8 (38.4) 48.4% 23.4% 19.4% Source: Company data, CIRL

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Exhibit 8: Financial forecast

Income statement Cash flow Year to Dec (RMB mn) FY14A FY15A FY16A FY17E FY18E Year to Dec (RMB mn) FY14A FY15A FY16A FY17E FY18E Revenue 8,923 11,126 13,346 16,256 19,150 Pre-tax profit 2,243 2,829 3,311 4,337 5,192 Gross profit (reported) 4,027 5,185 6,459 8,291 9,901 Taxes paid (522) (738) (948) (1,178) (1,417) EBITDA 2,147 2,851 3,390 4,475 5,391 Depreciation 128 154 187 226 268 Depreciation 128 154 187 226 268 Associates & Others (299) (146) (11) (58) (33) EBIT 2,019 2,697 3,203 4,249 5,124 CFO bef. WC change 2,072 2,837 3,487 4,505 5,427 Net interest income (exp.) 262 220 238 218 199 Change in working cap 142 (189) (63) 48 (8) Associates 0 0 0 0 0 Cashflow from operation 1,137 1,691 1,911 2,476 3,375 Exceptionals/others 0 0 0 0 0 CAPEX (240) (231) (573) (517) (609) Profit before tax 2,243 2,829 3,310 4,337 5,192 Free cash flow 897 1,460 1,338 1,958 2,766 Tax expenses 510 741 866 1,135 1,359 Dividends (1,090) (1,356) (1,572) (2,069) (2,472) Minority interest 32 48 59 59 59 Balance sheet adj. 1,273 (73) 695 253 (155) Net profit 1,700 2,040 2,385 3,143 3,775 Sharse issued 6 42 15 17 20 Dividends (1,208) (1,428) (1,675) (2,249) (2,693) Others 0 0 0 0 0 EPS (RMB) 0.68 0.82 0.95 1.28 1.53 Net cash flow 1,087 73 476 159 159 Net cash (debt) start 4,344 5,431 5,503 5,979 6,879 Balance sheet Net cash (debt) at year-end 5,431 5,503 5,979 6,879 8,142 Year to Dec (RMB mn) FY14A FY15A FY16A FY17E FY18E Cash & equiv 4,934 5,166 5,830 6,695 7,625 Ratios Trade receivables 1,701 2,207 2,641 3,180 3,746 Year to Dec (RMB mn) FY14A FY15A FY16A FY17E FY18E Other receivables 0 0 0 0 0 Growth rate (%) Inventories 867 1,016 1,295 1,547 1,810 Revenue 22.5% 24.7% 20.0% 21.8% 17.8% Other current assets 1,845 1,768 1,687 1,722 2,056 EBITDA 28.9% 32.8% 18.9% 32.0% 20.5% Fixed assets 925 1,121 1,170 1,222 1,275 EBIT 22.5% 24.7% 20.0% 21.8% 17.8% Intangible assets 489 464 478 478 478 Net profit 30.3% 20.5% 17.0% 31.0% 19.7% Investment, associates etc 622 760 1,123 1,123 1,123 Fully diluted EPS 27.8% 19.9% 16.7% 34.3% 19.7% Total assets 11,384 12,502 14,224 15,966 18,112 Margins (%) Gross margin (reported) 45.1% 46.6% 48.4% 51.0% 51.7% Account payables 1,654 1,990 3,060 3,727 4,391 EBITDA 24.1% 25.6% 25.4% 27.5% 28.2% Other payables 6 9 7 7 7 EBIT 22.6% 24.2% 24.0% 26.1% 26.8% Short-term debt 1,348 1,330 938 938 938 Net margin 19.4% 18.8% 18.3% 19.7% 20.0% Other current liabs 176 234 267 267 267 Other ratios Long-term debts 36 39 40 40 40 ROE (%) 23.8% 24.3% 25.5% 30.1% 32.0% Deferred tax and others 158 86 14 14 14 ROA (%) 15.8% 17.1% 17.8% 20.8% 22.2% Other long-term liabs 0 0 0 0 0 Net gearing (%) Net Cash Net Cash Net Cash Net Cash Net Cash Total liabilities 3,379 3,688 4,327 4,994 5,658 Interest coverage (x) 104.5 61.8 49.0 65.0 78.3 Receivables days 74.3 64.1 66.3 65.4 66.0 Share capital 242 243 243 243 243 Payables days 127.5 109.2 128.6 150.7 155.8 Reserves 7,553 8,337 9,306 10,396 11,997 Inventory days 58.0 57.9 61.2 65.1 66.2 Shareholders' equity 7,795 8,580 9,549 10,639 12,240 Effective tax rate (%) 22.7% 26.2% 26.2% 26.2% 26.2% Minorities 209 235 348 348 348 Total equity 8,005 8,814 9,896 10,986 12,587 Net cash (debt) 5,431 5,503 5,979 6,879 8,142

Source: Company data, CIRL estimates

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Exhibit 9: Peers comparison Exhibit 1: bloomberg Share Price Movement (%) PER (x) Yield (%) code 3M YTD FY14 FY15 FY16 FY17E FY18E FY14 FY15 FY16 FY17E FY18E Pork PRC - Sportswear peers LI NING CO LTD 2331 HK 5.4 35.9 -9.4 802.6 50.8 25.1 16.8 0.0% 0.0% 0.0% 0.0% 0.9% XTEPproducts INTL 1368 HK (10.6) (18.9) 9.7 7.6 9.5 9.1 8.0 6.3% 7.9% 6.2% 7.5% 8.6% 361 DEGREES 1361 HK 12.0 2.3 12.7 10.2 10.1 8.8 7.8 3.3% 4.0% 4.1% 4.8% 5.4% HONMAsold GOLF in LTD 6858 HK 10.5 (10.8) - - - 19.0 13.8 0.0% 0.0% 0.0% 0.0% 0.0% HOSA INTL LTD 2200 HK (4.6) (13.2) 7.6 11.7 12.3 12.2 11.4 4.4% 4.9% 5.3% 3.6% 2.9% YUEsupermark YUEN IND 551 HK 4.8 19.4 19.4 16.4 12.0 12.0 11.4 0.0% 3.6% 3.8% 4.0% 4.6% POU SHENG INTL 3813 HK (10.7) (36.3) 209.9 15.0 11.2 11.7 10.1 0.0% 0.0% 2.8% 2.6% 3.1% etAverage counters 1.0 (3.1) 51.9 143.9 17.6 14.0 11.3 4.7% 5.1% 4.5% 4.5% 4.2% ANTA SPORTS PROD 2020 HK 27.1 42.2 39.2 34.7 31.3 20.1 16.6 1.8% 2.0% 2.3% 3.1% 3.7%

International - Sportswear peers NIKE INC -CL B NKE US (10.1) 5.1 35.2 28.3 24.3 22.2 22.8 0.9% 1.0% 1.2% 1.3% 1.4% ADIDAS AG ADS GR 6.1 24.7 71.0 63.4 39.4 28.5 23.6 0.9% 0.8% 1.0% 1.3% 1.7% UNDER ARMO-C UA US (18.2) (41.1) - - - 40.3 34.9 0.0% 0.0% 0.0% 0.0% 0.0% LULULEMON ATH LULU US (0.0) (4.8) 32.2 37.5 32.8 28.8 25.5 0.0% 0.0% 0.0% 0.0% 0.0% PUMA SE PUM GR 7.4 43.4 74.3 153.9 91.7 39.6 29.4 0.2% 0.1% 0.2% 0.4% 0.5% ASICS CORP 7936 JP (11.7) (24.7) 18.3 34.9 20.5 21.6 19.1 1.1% 1.2% 1.4% 1.4% 1.5% MIZUNO CORP 8022 JP (0.6) 13.5 27.1 23.5 41.4 52.6 45.0 1.8% 1.6% 1.5% 1.6% 1.6% DESCENTE LTD 8114 JP (9.8) 8.7 21.7 16.2 14.8 17.9 18.0 0.8% 1.1% 1.1% 1.2% 1.6% COLUMBIA SPORTSW COLM US 9.1 7.4 32.0 25.4 22.9 22.3 20.5 0.9% 1.0% 1.1% 1.2% 1.2% Average (2.2) 3.4 39.0 47.9 36.0 30.4 26.5 0.9% 1.0% 1.0% 1.2% 1.3%

ANTA SPORTS PROD 2020 HK 27.1 42.2 39.2 34.7 31.3 20.1 16.6 1.8% 2.0% 2.3% 3.1% 3.7%

Source: Bloomberg, CIRL estimates

Exhibit 7: ANTA’s 12 month forward P/E Ratio

Exhibit 1:

12 mths Forward P/E Ratio Pork60 avg. -1std. products sold 50in

supermark40 +1std. a et counters 30 -

20

10 -1std.

0 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Source: Bloomberg, CIRL

R isk Factors

Downside risks include: 1) over-reliance on distributors; 2) excess inventory

in distribution channels; 3) rising production costs 4) increasing competition

from international and PRC peers; 5) higher marketing spending and

execution risks of FILA, Kolon JV and KingKow

Page 6 / 7

Rating Policy

Rating Definition Buy Outperform HSI by 15% Stock Rating Neutral Between -15% ~ 15% of the HSI Sell Underperform HSI by -15% Accumulate Outperform HSI by 10% Sector Rating Neutral Between -10% ~ 10% of the HSI Reduce Underperform HSI by -10%

Analysts List

Hayman Chiu Research Director (852) 2235 7677 [email protected] Kenneth Li Senior Research Analyst (852) 2235 7619 [email protected] Lewis Pang Senior Research Analyst (852) 2235 7847 [email protected]

Wilfred Yuen Research Analyst (852) 2235 7131 [email protected] Chloe Chan Research Analyst (852) 2235 7170 [email protected] Johnny Yum Research Assistant (852) 2235 7619 [email protected]

Analyst Certification I, Hayman Chiu, Research Director of Cinda International Research Limited., hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was / were, is / are or will be directly or indirectly, related to the specific recommendations or views expressed in this report / note.

Disclaimer This report has been prepared by the Cinda International Research Limited. Although the information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable, Cinda International Research Limited cannot and does not warrant the accuracy or completeness of any such information and analysis. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Recipients should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. The report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so may contain uncertainty. Any opinions expressed in this report are subject to change without notice. The report is published solely for information purposes, and it does not constitute any advertisement and should not be construed as an offer to buy or sell securities. Cinda International Research Limited will not accept any liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this report. This document is for the use of intended recipients only, the whole or a part of this report should not be reproduced to others.

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