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ANTA Sports Products (2020 HK) Not Rated Share Price HKD 16.02 1Q17 Fair Takeaways

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ANTA Sports Products (2020 HK) Not Rated Share Price HKD 16.02 1Q17 Fair Takeaways July 13, 2016 ANTA Sports Products (2020 HK) Not Rated 1Q17 fair takeaways Share Price HKD 16.02 Company Description Takeaways from company visit ANTA Sports designs, develops, manufactures and We recently attended Anta’s 1Q17 trade fair in Jinjiang and visited Anta markets ANTA sportswear, including sports footwear, and Fila stores in Xiamen. Despite Anta’s increasingly conservative apparel and accessories. outlook, which is similar to peers, there were clearly strong interests in the company’s new functional sportswear products as distributors build up their 1Q orders. Customer traffic was clearly healthier in shopping Statistics malls vs. street-level stores. Anta has already taken the initiative to shift 52w high/low (HKD) 24.05/14.24 more stores into malls in a bid to increase store efficiency. Key catalysts: 3m avg turnover (USDm) 17.0 1) rising contribution from Fila brand and sales via e-commerce channels; Free float (%) 38.2 2) product mix upgrade; and 3) improving sales efficiency through store Issued shares (m) 2,504 Market capitalisation HKD40.1B Consumer Disc. upgrades and utilization of new logistics centre. USD5.2B Product mix upgrades continue into 1Q17 Major shareholders: Anta International Group Holdings Ltd. 54.9% Anta continues to roll out more functional sportswear products, with a DING YA LI 6.4% strong focus on the sole technology of running shoes, basketball shoes, Norges Bank Investment Management 1.1% and water repelling/ wind-breaking jackets for the quarter. Note that Price Performance since the company first introduced its smart running shoes (19 Jun 16; ~CNY369) it remained top 5 in footwear sales every week. 26.0 220 China 24.0 200 Takeaways from store managers 22.0 180 Our visit to Anta’s 7th generation stores was encouraging. Retail discounts 20.0 160 normalized to around 30% vs. 30%+ the previous quarters, according to 18.0 140 the store managers. Operators are now able to achieve high single-digit EBIT margin for the stronger performing stores vs. the nationwide 16.0 120 average of MSD %. Store managers attributed the stronger performance 14.0 100 th th to the 7 generation stores compared to the 6 generation stores. Anta 12.0 80 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 has ~7,000 core stores. It has upgraded ~1,000 stores so far and management expects to upgrade another 2,000 this year. ANTA Sports - (LHS, HKD) ANTA Sports / Hang Seng Index - (RHS, %) Valuations -1M -3M -12M Absolute (%) (0) (15) (9) ANTA is trading at 14.1x/12.2x FY16/17E PE, according to Bloomberg Relative to index (%) (1) (18) 7 consensus, below its three-year average of 15.1x. The counter is at a 10% Source: FactSet premium to H-listed sportswear peers (FY16E: 12.7x) or 53% discount to international peers’ average (FY16E: 30.0x). Consensus currently expects an EPS CAGR of 22% for FY15-17E. FYE Dec (CNY m) FY11A FY12A FY13A FY14A FY15A Anta is the largest sportswear company in Revenue 8,905 7,623 7,281 8,923 11,126 China EBITDA 2,025 1,536 1,578 2,066 2,606 Retail sales (CNYm) Core net profit 1,730 1,359 1,315 1,700 2,041 Core EPS (CNY) 0.69 0.54 0.53 0.68 0.82 Others Nike Core EPS growth (%) na (21.5) (3.2) 29.1 19.9 Net DPS (CNY) 0.42 0.39 0.38 0.48 0.57 Core P/E (x) 19.9 25.3 26.2 20.3 16.9 Peak P/BV (x) 5.4 5.1 4.8 4.4 4.0 Net dividend yield (%) 3.1 2.8 2.8 3.5 4.1 Converse adidas ROAE (%) na 20.7 18.9 22.7 24.9 Erke ROAA (%) na 14.9 13.0 15.8 17.1 EV/EBITDA (x) 7.0 6.3 9.1 11.0 15.1 361 Net debt/equity (%) net cash net cash net cash net cash net cash Degrees Anta New Li Ning Balance Xtep Source: Euromonitor, Maybank Kim Eng Benjamin Ho Ka Leong Lo [email protected] [email protected] (852) 2268 0632 (852) 2268 0630 THIS REPORT HAS BEEN PREPARED BY KIM ENG SECURITIES (HK) LTD. SEE PAGE 8 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS ANTA Sports Products Appendix Fig 1: Anta’s 7th generation store footwear section layout Fig 2: Anta’s latest smart running shoes (released 19 June) Source: Maybank Kim Eng Source: Maybank Kim Eng Fig 3: Anta Kid’s store layout Fig 4: Fila store layout inside shopping mall Source: Maybank Kim Eng Source: Maybank Kim Eng July 13, 2016 2 ANTA Sports Products Fig 5: ANTA Sports 12m forward PE band (HKD) 30.0 24x 25.0 20x 20.0 16x 15.0 12x 10.0 8x 5.0 4x 0.0 Jul 09 Apr 10 Jan 11 Oct 11 Jul 12 Apr 13 Jan 14 Oct 14 Jul 15 Apr 16 Source: Bloomberg, Maybank Kim Eng Fig 6: ANTA Sports 12m forward P/B band (HKD) 30.0 6.0x 25.0 5.0x 20.0 4.0x 15.0 3.0x 10.0 2.0x 5.0 1.0x 0.0 Jul 09 Apr 10 Jan 11 Oct 11 Jul 12 Apr 13 Jan 14 Oct 14 Jul 15 Apr 16 Source: Bloomberg, Maybank Kim Eng July 13, 2016 3 July 13, 2016 13, July ANTA Sports Products ANTA Fig 7: Sportswear and apparels sector peer valuation comparison (as of 11th July 2016) Px FY15-17F Net Market 3m Performance PER P/BV ROE ROA EV/EBITDA Dividend Yield EPS CAGR PEG GPM NPM Gearing Price Cap ADTV 1m 3m FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E 3m chg EPS FY16E FY16E 2015 Company Ticker (lcy) (USDm) (USD) (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) (x) (x) (%) (%) (%) (%) (x) (%) (%) (%) H-listed sportswear footwear and apparel Anta Sports 2020 HK 15.22 4,907 17.4 (5.1) (21.3) 14.1 12.2 3.5 3.1 25.7 26.7 19.1 20.4 8.6 7.5 4.9 5.6 0.0 22.0 0.6 46.9 17.9 Net cash Belle Int’l 1880 HK 4.55 4,947 10.9 3.4 1.3 9.0 9.2 1.2 1.2 14.2 13.1 11.5 10.8 4.6 4.7 7.0 6.8 (6.4) (13.8) (0.7) 54.4 8.9 Net cash Pou Sheng Int’l 3813 HK 2.20 1,512 1.8 (1.8) 25.0 14.9 12.9 1.5 1.4 10.4 11.2 7.2 7.9 9.3 8.0 0.4 1.1 35.7 n.a. 34.2 3.9 5.9 . Xtep Int’l 1368 HK 3.98 1,133 2.4 (3.6) (6.4) 10.5 9.4 1.5 1.4 14.2 15.6 8.8 10.3 5.0 4.5 5.6 6.2 0.6 17.2 0.6 42.7 12.2 Net cash China Dongxiang 3818 HK 1.41 1,006 1.8 1.4 (7.1) 11.9 10.9 0.7 0.7 5.7 6.5 6.2 6.4 8.2 7.4 5.1 5.8 0.0 (10.1) (1.2) 55.1 27.3 Net cash C.Banner Int’l 1028 HK 2.85 765 0.9 (5.0) 2.5 22.3 20.5 2.1 1.9 12.4 12.5 7.0 7.2 14.0 13.1 1.6 2.0 0.0 n.a. 58.6 6.8 21.7 Li Ning 2331 HK 3.99 970 4.3 20.9 11.8 21.8 13.7 2.0 1.7 10.2 14.8 4.9 7.3 8.2 5.8 0.5 1.3 (4.2) n.a. n.a. 46.0 4.2 Net cash Peak Sport 1968 HK 2.19 674 2.5 0.9 5.3 10.4 9.4 0.9 0.8 8.5 9.0 6.4 6.6 2.3 2.0 6.7 7.3 0.0 13.1 0.8 38.8 12.6 Net cash Hosa Int’l 2200 HK 2.60 556 0.2 1.6 13.0 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Net cash 361 Degrees Int’l 1361 HK 2.07 552 0.5 (8.0) (22.2) 6.5 5.7 0.6 0.6 10.9 11.5 6.0 6.8 1.8 1.6 6.4 7.4 (2.5) 22.0 0.3 41.0 11.2 Net cash Market-weighted average 8.9 (0.1) (3.3) 10.6 11.3 1.9 1.8 15.9 16.4 11.7 12.2 6.9 6.2 4.8 5.3 1.1 4.5 0.0 48.3 12.1 11.2 Average 3.9 (0.1) 2.2 0.1 12.1 1.4 1.3 11.2 12.4 7.7 8.6 6.8 5.8 3.9 4.5 2.6 8.4 0.1 47.6 10.5 13.8 A-listed sportswear footwear and apparel Kingnet Network 002517 CH 45.01 4,553 25.2 6.0 (7.2) 33.8 30.4 20.6 13.3 55.4 44.5 36.2 32.2 43.0 35.4 0.3 0.5 (14.0) 16.9 2.0 61.7 26.1 Net cash Guirennia 603555 CH 25.02 2,296 9.7 (2.1) (13.9) 43.7 39.2 6.0 5.5 14.5 15.1 9.5 9.8 27.3 25.0 0.7 0.7 (12.3) 16.9 2.6 44.3 16.7 13.1 Metersbonwe Fashion002269 CH 4.45 1,680 12.7 (5.9) (13.1) 111.3 70.6 3.5 3.3 3.0 4.6 0.6 1.4 23.2 20.2 n.a.
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