ANTA Sports Products Ltd Target Price: HKD24.00 Price: HKD20.90 Sustained High Growth from Market Leader Market Cap: USD6,743M Bloomberg Ticker: 2020 HK

Hong Kong Company Update

28 October 2016 Consumer Cyclical | Sportswear Buy (from Neutral) ANTA Sports Products Ltd Target Price: HKD24.00 Price: HKD20.90 Sustained High Growth From Market Leader Market Cap: USD6,743m Bloomberg Ticker: 2020 HK

We have renewed confidence that Anta can sustain a higher-growth Share Data profile compared to its peers in upcoming years. It stands to book Avg Daily Turnover (HKD/USD) 114m/14.7m resilient topline growth and margin expansion after releasing sterling 52-wk Price low/high (HKD) 14.2 - 24.1 2Q17 trade fair and 3Q16 operating data. Upgrade to BUY (from Neutral) with a TP of HKD24.00 (from HKD19.00, 15% upside). In spite of Free Float (%) 34 moderating growth in China’s sportswear sector, Anta has executed its Shares outstanding (m) 2,499 strategies well, managing to re-accelerate its core-brand sales and Estimated Return 15% cultivate growth of its newer brands. Shareholders (%) 2Q17 F trade fair sales growth remains at mid-single digits, in line with Ding Family 66.0 estimates. As Anta Sports Products (Anta) plans to increase replenishment orders to 10-15% of sales (from c.5%) for 3Q17-4Q17, we think its trade fair sales are unlikely to record major growth as new growth drivers – replenishment orders, non-core brands, e-commerce – are not captured in this measurement. Share Performance (%) As such, trade fair indicators become less relevant. Note that its footwear segment recorded double-digit volume growth, while apparel recorded both YTD 1m 3m 6m 12m negative ASP and volume growth. This suggests that the demand for functional Absolute (1.9) (1.0) 17.2 0.0 (4.8) shoes is still strong while the outlook for sports casual wear remains tough. Relative (7.5) 0.9 13.1 (8.3) (4.7) Retail sales growth picked up in 3Q16. Anta-branded product sales growth Source: Bloomberg accelerated to low double-digits (from high single digit growth in 2Q16) in both ANTA Sports Products Ltd (2020 HK) offline and online channels. Sales of its core brand, Anta, in physical stores Price Close Relative to Hang Seng Index (RHS) grew faster due to higher replenishment rates and lower retail discounts given. 25 116 23 109 E-commerce sales growth accelerated to over 50% YoY on close cooperation 21 101 19 94 with platform partners. It even aims to double the e-commerce sales of the 17 86 upcoming Double-11 Singles Day. We note that e-commerce enjoys the highest 15 79 13 71 30 EBIT margins amongst all of Anta’s business segments. Thus, its growth helps 25 to drive its overall margin expansion. 20 15 Fila sales growth picked up to 50% YoY in 3Q, (1H16: +30% YoY) due to 10

successful marketing campaigns that improved brand awareness and store 5

Volm

15 16

- -

efficiency. Our previous concerns on the sustainability of Fila’s growth have -

Jul

Oct

Mar

Dec Sep eased, and we now see the brand (which is a self-operated retail business) May providing greater EBIT margin accretion to the group due to a faster ramp-up. Source: Bloomberg Upgrade to BUY with a higher TP. We raise FY16-18F EPS by 5-15% on faster sales and higher EBIT margins, as higher-margin Fila and e-commerce sales look likely to sustain their high-growth trajectories. Our TP rises to HKD24.00, implying 17x FY17F P/E – a well-deserved premium over the domestic sportswear sector (ex-outlier Li Ning (2331 HK, NEUTRAL, TP: HKD4.30)) average of 11x – given Anta’s faster NP growth profile and higher ROE.

Forecasts and Valuations Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Total turnover (CNYm) 8,923 11,126 13,524 16,006 18,789 Reported net profit (CNYm) 1,700 2,041 2,418 2,920 3,481 Recurring net profit (CNYm) 1,705 2,072 2,368 2,920 3,481 Recurring net profit growth (%) 29.7 21.5 14.3 23.3 19.2 Recurring EPS (CNY) 0.68 0.83 0.95 1.17 1.39 DPS (CNY) 0.48 0.57 0.66 0.82 0.98 Recurring P/E (x) 26.7 22.0 19.3 15.6 13.1 P/B (x) 5.85 5.32 4.91 4.49 4.07 P/CF (x) 26.7 26.5 22.4 16.4 13.8 Dividend Yield (%) 2.6 3.1 3.6 4.5 5.3 EV/EBITDA (x) 19.6 15.2 12.7 9.9 8.2 Analyst Return on average equity (%) 22.7 24.9 27.1 30.0 32.6 Robin Yuen, CFA Net debt to equity net cash net cash net cash net cash net cash +852 2103 9202 Our vs consensus EPS (adjusted) (%) 0.9 8.3 14.2 [email protected]

Source: Company data, RHB

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ANTA Sports Products Ltd Hong Kong Company Update

28 October 2016 Consumer Cyclical | Sportswear

Financial Exhibits

Financial model updated on : 2016-10-27. Asia Financial summary Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Hong Kong Recurring EPS (CNY) 0.68 0.83 0.95 1.17 1.39 Consumer Cyclical EPS (CNY) 0.68 0.82 0.97 1.17 1.39 ANTA Sports Products Ltd DPS (CNY) 0.48 0.57 0.66 0.82 0.98 Bloomberg 2020 HK BVPS (CNY) 3.12 3.43 3.72 4.07 4.49 Buy Weighted avg adjusted shares (m) 2,496 2,499 2,499 2,499 2,499

Valuation basis Valuation metrics Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F DCF Recurring P/E (x) 26.7 22.0 19.3 15.6 13.1 P/E (x) 26.8 22.4 18.9 15.6 13.1 Key drivers P/B (x) 5.85 5.32 4.91 4.49 4.07 i. Product mix upgrade; FCF Yield (%) 3.2 3.3 3.0 4.6 5.8 ii. Sports participation rate Dividend Yield (%) 2.6 3.1 3.6 4.5 5.3

EV/EBITDA (x) 19.6 15.2 12.7 9.9 8.2 Key risks EV/EBIT (x) 21.2 16.4 13.5 10.8 8.9 i. Channel oversupply;

ii. Homogenisation; iii. Competitive pricing from rivals Income statement (CNYm) Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Total turnover 8,923 11,126 13,524 16,006 18,789 Company Profile Gross profit 4,027 5,185 6,524 7,809 9,224 Anta is a leading domestic sportswear brand with a EBITDA 2,092 2,658 3,183 4,071 4,821 network of over 7,000 stores in the People’s Republic Depreciation and amortisation (159) (188) (188) (359) (359) of China. Based in Fujian, the company manufactures Operating profit 1,933 2,470 2,994 3,712 4,461 via a mix of original equipment manufacturing and Net interest 224 133 128 90 98 self-owned factories – but relies on franchise distributors to sell at the retail level. Pre-tax profit 2,243 2,829 3,357 4,036 4,793 Taxation (510) (741) (873) (1,049) (1,246)

Minority interests (32) (48) (66) (66) (66) Recurring net profit 1,705 2,072 2,368 2,920 3,481

Cash flow (CNYm) Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Change in working capital (68) (415) (302) (296) (328) Cash flow from operations 1,706 1,724 2,035 2,778 3,306 Capex (236) (229) (660) (660) (660) Cash flow from investing activities (865) (413) (643) (681) (673) Dividends paid (1,072) (1,334) (1,658) (2,044) (2,437) Cash flow from financing activities (238) (1,294) (1,658) (2,044) (2,437) Cash at beginning of period 4,344 4,934 5,166 5,135 5,422 Net change in cash 603 17 (265) 53 196 Ending balance cash 4,954 4,987 4,901 5,188 5,618

Balance sheet (CNYm) Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Total cash and equivalents 6,244 6,733 6,802 7,190 7,719 Tangible fixed assets 1,378 1,725 2,230 2,564 2,899 Total other assets 659 621 598 575 553 Total assets 11,384 12,502 13,711 15,107 16,734 Short-term debt 1,348 1,330 1,330 1,330 1,330 Other liabilities 36 39 39 39 39 Total liabilities 3,379 3,688 4,120 4,574 5,091 Shareholders' equity 7,795 8,580 9,290 10,166 11,210 Minority interests 209 235 301 367 433 Total equity 8,005 8,814 9,591 10,533 11,643 Net debt (4,896) (5,403) (5,472) (5,860) (6,389) Total liabilities & equity 11,384 12,502 13,711 15,107 16,734

Key metrics Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Revenue growth (%) 22.5 24.7 21.6 18.4 17.4 Recurrent EPS growth (%) 29.6 21.4 14.3 23.3 19.2 Gross margin (%) 45.1 46.6 48.2 48.8 49.1 Operating EBITDA margin (%) 23.4 23.9 23.5 25.4 25.7 Net profit margin (%) 19.1 18.3 17.9 18.2 18.5 Dividend payout ratio (%) 71.1 70.0 68.6 70.0 70.0 Capex/sales (%) 2.6 2.1 4.9 4.1 3.5 Interest cover (x) (8.63) (18.62) (23.31) (41.24) (45.65)

Source: Company data, RHB

See important disclosures at the end of this report 2

ANTA Sports Products Ltd Hong Kong Company Update

28 October 2016 Consumer Cyclical | Sportswear

2Q17 trade fair data 2Q17 trade fair order value increased by mid-single digits YoY (1Q17: mid-single digit growth). Footwear orders increased around 10% YoY, driven by volumes rising by double digits YoY but ASPs were slightly down due to the introduction of lower-price functional running shoes. Footwear accounted for 47% of the total order value. Apparel orders (49% of total order value) decreased, with both volumes and ASPs declining.

3Q16 retail sales data 3Q16 retail sales of Anta-branded products increased by low double-digits YoY, compared to high single-digit growth recorded in 2Q16. i. Its core Anta brand sales gr in the mid-single digits, faster than low-single digits in 1H16; ii. Sales of Anta Kids apparel grew 30% YoY E-commerce sales grew over 50. 3Q16 retail sales of nonAnta-branded products increased 60-70% YoY. These brands include Fila, Fila Kids, the NBA mono-brand and Descente.

Figure 1: Anta’s trade fair data Figure 2: Anta’s retail sales growth 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 1Q16 2Q16 3Q16 4Q16

Anta Total Order Value low DD low DD high SD low DD mid SD mid SD Footwear - Price (-) Anta Footwear - Vol +DD Anta-branded mid-SD high-SD low-DD Apparel - Price (-) Non-Anta branded 60-70% Apparel - Vol (-) Source: Company data, RHB Source: Company data, RHB

Key takeaways from conference call Reasons for strong performance. In the call, Anta attributed this to the following factors: i. The growth of its core brand, Anta, improved in the offline format; ii. The replenishment rate increased; iii. Strong e-commerce growth (+50% YoY) stemming from close cooperation with platform partners; iv. Offline sales growth of Fila products reaccelerated to +50% YoY (from +30% in 1H16) due to successful marketing events that led to improved brand equity, as well as continued store openings; v. Strong pick-up in sales of other non-Anta brands such as NBA and Descente:  Increasing replenishment orders. Anta plans to increase the proportion of replenishment orders to 10-15% of sales in 3Q17 and 4Q17 (2Q17: single-digits) after its logistics centre becomes operational. This implies that trade fair orders in the future may not see significant growth, as more orders are placed outside trade fairs. It also means trade fair orders may no longer be a reliable measure of sales growth. This bodes well for Anta’s distributors as greater replenishment orders would lead to wider margins for them. Anta itself would prefer to keep its GPM stable, as it prioritises market share over increased profitability;  Improved retail discounts for 3Q16 by 1ppt on a YoY basis;  EBIT margin mix upgrade from improved Fila store efficiency, and a greater proportion of e-commerce which commands operating margins of over 30%, ie the highest among the rest of Anta’s business segments;  A&P budget as a percentage of sales to be lower in FY17F, outside of an Olympics year.  Olympics-related products sold very well during the period, but accounted for a small and immaterial amount of sales.

See important disclosures at the end of this report 3

ANTA Sports Products Ltd Hong Kong Company Update

28 October 2016 Consumer Cyclical | Sportswear

Figure 3: Key changes to estimates New Estimates Old Estimates Difference FYE Dec (CNYm) 2016F 2017F 2018F 2016F 2017F 2018F 2016F 2017F 2018F Sales 13,524 16,006 18,789 13,125 15,080 17,326 3.0% 6.1% 8.4% COGS (7,000) (8,197) (9,565) (6,826) (7,804) (8,923) Gross profit 6,524 7,809 9,224 6,299 7,276 8,403 3.6% 7.3% 9.8% Selling and distribution expenses (2,840) (3,321) (3,852) (2,789) (3,167) (3,638) Administrative expenses (690) (776) (911) (689) (792) (910) SG&A (3,530) (4,098) (4,763) (3,478) (3,958) (4,548) 1.5% 3.5% 4.7% EBIT (Core) 2,994 3,712 4,461 2,821 3,317 3,855 6.1% 11.9% 15.7% Other income 234 234 234 234 234 234 Other net loss ------Net finance income 128 90 98 128 90 97 PBT 3,357 4,036 4,793 3,184 3,641 4,186 5.4% 10.8% 14.5% Tax (873) (1,049) (1,246) (828) (947) (1,088) Profit for the Period 2,484 2,986 3,547 2,356 2,694 3,098 5.4% 10.8% 14.5% Minorities 66 66 66 66 66 66 Net Profit (reported, Equity) 2,418 2,920 3,481 2,290 2,628 3,032 5.6% 11.1% 14.8% less: One-off gains/(loss) 50 - - 50 - - Net Profit (recurring, Equity) 2,368 2,920 3,481 2,240 2,628 3,032 5.7% 11.1% 14.8% EPS (CNY) 0.95 1.17 1.39 0.90 1.05 1.21 5.7% 11.1% 14.8%

YoY Change Sales 21.6% 18.4% 17.4% 18.0% 14.9% 14.9% Gross profit 25.8% 19.7% 18.1% 21.5% 15.5% 15.5% SG&A expenses 30.0% 16.1% 16.2% 28.1% 13.8% 14.9% EBIT (Core) 21.3% 24.0% 20.2% 14.2% 17.6% 16.2% NP (reported, Equity) 18.5% 20.8% 19.2% 12.2% 14.8% 15.3% NP (recurring, Equity) 14.3% 23.3% 19.2% 8.1% 17.3% 15.3%

As % of Sales GP margins 48.2% 48.8% 49.1% 48.0% 48.2% 48.5% 0.2ppt 0.5ppt 0.6ppt EBIT margins 22.1% 23.2% 23.7% 21.5% 22.0% 22.3% 0.6ppt 1.2ppt 1.5ppt Tax rate 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 0.0ppt 0.0ppt 0.0ppt NP (reported) margin 17.9% 18.2% 18.5% 17.4% 17.4% 17.5% 0.4ppt 0.8ppt 1.0ppt NP (recurring) margin 17.5% 18.2% 18.5% 17.1% 17.4% 17.5% 0.4ppt 0.8ppt 1.0ppt Dividend payout ratio 70% 70% 70% 70% 70% 70% 0.0ppt 0.0ppt 0.0ppt

Source: RHB

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ANTA Sports Products Ltd Hong Kong Company Update

28 October 2016 Consumer Cyclical | Sportswear

Figure 4: Full-year P&L statement and projections FYE Dec (CNYm) 2014 2015 2016F 2017F 2018F Sales 8,923 11,126 13,524 16,006 18,789 COGS (4,896) (5,941) (7,000) (8,197) (9,565) Gross profit 4,027 5,185 6,524 7,809 9,224 Selling and distribution expenses (1,697) (2,212) (2,840) (3,321) (3,852) Administrative expenses (397) (504) (690) (776) (911) SG&A (2,094) (2,716) (3,530) (4,098) (4,763) EBIT (Core) 1,933 2,470 2,994 3,712 4,461 Other income 86 227 234 234 234 Other net loss - - - - - Net finance income 224 133 128 90 98 PBT 2,243 2,829 3,357 4,036 4,793 Tax (510) (741) (873) (1,049) (1,246) Profit for the Period 1,733 2,088 2,484 2,986 3,547 Minorities 32 48 66 66 66 Net Profit (reported, Equity) 1,700 2,041 2,418 2,920 3,481 less: One-off gains/(loss) (5) (32) 50 - - Net Profit (recurring, Equity) 1,696 2,072 2,368 2,920 3,481 EPS (CNY) 0.68 0.83 0.95 1.17 1.39

YoY Change Sales 22.5% 24.7% 21.6% 18.4% 17.4% Gross profit 32.5% 28.8% 25.8% 19.7% 18.1% SG&A expenses 32.9% 29.7% 30.0% 16.1% 16.2% EBIT (Core) 32.1% 27.8% 21.3% 24.0% 20.2% NP (reported, Equity) 29.3% 20.0% 18.5% 20.8% 19.2% NP (recurring, Equity) 29.0% 22.2% 14.3% 23.3% 19.2%

As % of Sales GP margins 45.1% 46.6% 48.2% 48.8% 49.1% EBIT margins 21.7% 22.2% 22.1% 23.2% 23.7% Tax rate 22.7% 26.2% 26.0% 26.0% 26.0% NP (reported) margin 19.1% 18.3% 17.9% 18.2% 18.5% NP (recurring) margin 19.0% 18.6% 17.5% 18.2% 18.5% Dividend payout ratio 71% 70% 70% 70% 70%

Source: RHB

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ANTA Sports Products Ltd Hong Kong Company Update

28 October 2016 Consumer Cyclical | Sportswear

Figure 5: Segmental breakdown by brand 2014 2015 2016F 2017F 2018F Revenue - by brand Anta Core 75.9% 70.0% 62.5% 55.0% 47.5% Anta Kids 6.0% 7.5% 8.5% 9.5% 10.5% Fila 12.0% 15.0% 18.2% 21.3% 24.5% E-commerce 6.0% 7.5% 10.0% 12.5% 15.0% Descente 0.0% 0.0% 0.8% 1.7% 2.5% Total 100.0% 100% 100% 100% 100%

YoY Change Anta Core 15% 9% 4% 1% Anta Kids 55% 38% 32% 30% Fila 56% 47% 39% 35% E-commerce 55% 62% 48% 41% Descente 0% 0% 137% 76% Total 25% 22% 18% 17%

Source: RHB

Figure 6: Anta’s forward P/E band

Source: Bloomberg, RHB

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ANTA Sports Products Ltd Hong Kong Company Update

28 October 2016 Consumer Cyclical | Sportswear

Figure 7: Peer comparison II – Sportswear apparel companies Company Ticker Price Mkt cap 3-mth P/E P/E P/E EPS FY1 EPS FY2 3-Yr EPS PEG Div yld PB/V PB/V (USDm) avg t/o Hist FY1 FY2 YoY% YoY% Cagr (%) (x) Hist (%) Hist FY1 (USDm) (x) (x) (x) (x) (x)

HSI 23,132 12.5 12.7 11.7 (1.7) 9.2 5.9 2.0 3.5 1.2 1.2 CSI300 3,346 15.3 14.1 12.5 9.0 12.8 1.1 2.1 1.8 1.7 Sector avg 50.3 18.5 15.8 75.9 12.6 6.3 0.7 4.3 2.2 2.0 Domestic Sportswear - H-share Anta Sports Prod 2020 HK 20.90 6,743 15.8 22.0 19.3 15.6 14.3 23.3 18.9 0.8 3.1 5.1 4.8 Xtep Intl 1368 HK 3.44 985 2.1 10.4 9.6 8.5 8.0 12.6 10.0 0.9 5.8 1.3 1.3 Li Ning Co Ltd 2331 HK 5.56 1,394 7.4 NM 36.6 30.2 NM NM NM 0.1 0.0 2.8 2.8 China Dongxiang 3818 HK 1.55 1,107 1.7 9.3 11.1 11.7 (16.2) (4.9) (8.9) N/A 7.7 0.8 0.8 361 Degrees 1361 HK 2.96 789 1.2 10.4 9.6 8.3 7.6 15.6 14.0 0.7 6.0 1.0 0.9 Peak Sport 1968 HK 2.59 798 3.4 12.9 13.0 12.0 (0.9) 8.0 4.4 2.9 2.7 1.1 1.1 Pou Sheng Intl 3813 HK 2.39 1,645 2.2 25.5 14.0 11.0 81.8 27.3 41.1 0.3 0.8 1.8 1.7 Average (ex-Li Ning) 15.1 12.8 11.2 15.8 13.7 13.2 1.1 4.4 1.9 1.8

International Sportswear Nike Inc -Cl B NKE US 51.97 86,553 501.4 23.5 21.9 19.3 7.5 13.5 12.7 1.7 1.2 7.1 6.9 Adidas Ag ADS GR 148.68 33,961 124.3 47.2 30.3 26.4 55.6 15.1 28.1 1.1 1.1 5.1 4.9 Puma Se PUM GR 231.10 3,806 0.7 93.2 59.2 38.4 57.3 54.2 49.6 1.2 0.2 2.2 2.1 Under Armour-A UA US 31.81 12,881 195.3 58.9 52.8 45.7 11.7 15.4 15.5 3.4 N/A 7.2 6.8 Lululemon Ath LULU US 57.01 7,813 157.3 30.0 26.8 22.7 12.0 18.1 14.1 1.9 N/A 6.8 6.1 Asics Corp 7936 JP 2,273.00 4,338 15.3 42.1 32.4 24.1 30.3 34.4 26.8 1.2 1.0 2.5 2.1 Mizuno Corp 8022 JP 556.00 705 0.8 33.6 25.7 20.4 30.6 26.2 23.5 1.1 1.8 0.8 0.8 Average 46.9 35.6 28.1 29.3 25.3 24.3 1.7 1.1 4.5 4.2

Sportswear OEM Yue Yuen Ind 551 HK 29.00 6,166 8.3 15.8 13.1 12.1 20.3 8.8 12.1 1.1 4.1 1.3 1.3 Win Hanverky 3322 HK 1.33 220 0.3 6.9 6.7 6.7 4.2 0.0 3.0 2.2 8.6 0.8 0.7 Pegasus Intl Hld 676 HK 1.06 100 0.0 75.9 N/A N/A N/A N/A N/A N/A 1.9 1.2 N/A Kingmaker Foot 1170 HK 1.90 170 0.2 10.9 9.0 7.3 20.8 23.8 22.6 0.4 6.8 1.2 1.0 Average 27.4 9.6 8.7 15.1 10.9 12.6 1.2 5.4 1.1 1.0

Footwear Belle Intl 1880 HK 4.71 5,122 12.7 7.7 9.7 10.3 (20.0) (6.4) (9.8) (1.1) 5.5 1.3 1.3 Stella Internati 1836 HK 13.38 1,371 1.5 11.3 16.1 14.5 (30.1) 11.2 (4.3) N/A 6.4 1.4 1.4 Le Saunda 738 HK 1.76 160 0.1 8.3 11.7 12.6 (29.1) (6.7) N/A N/A 8.9 0.8 0.8 Daphne Internati 210 HK 1.02 217 0.2 N/A N/A N/A N/A N/A (149.0) N/A N/A 0.4 0.4 Average 9.1 12.5 12.5 (26.4) (0.6) (54.4) (1.1) 6.9 1.0 1.0 Note: Prices are as of 27 Oct 2016 Source: Bloomberg, RHB

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ANTA Sports Products Ltd Hong Kong Company Update

28 October 2016 Consumer Cyclical | Sportswear

Figure 8: Peer comparison II – Sportswear apparel companies Company Ticker Rev Rev NP Hist NP FY1 Net Net Beta Gross Net Net ROE ROE Sh px Sh px Hist FY1 (USDm) (USDm) gearing gearing margin margin margin Hist (%) FY1 (%) 1-mth 3-mth (USDm) (USDm) Hist (%) FY1 (%) Hist (%) Hist (%) FY1 (%) % %

HSI 9.5 9.2 (1.9) 4.1 CSI300 11.9 11.9 3.2 4.0 Sector avg 2.4 2.2 0.7 39.8 7.6 7.5 9.2 11.1 (1.0) 2.1 Domestic Sportswear - H-share Anta Sports Prod 2020 HK 1,641 1,953 325 365 0.0 0.0 0.5 46.6 18.3 17.9 26.0 26.3 (0.9) 17.2 Xtep Intl 1368 HK 781 836 99 105 0.0 0.0 0.3 42.2 11.8 12.4 13.4 14.1 (8.0) (16.7) Li Ning Co Ltd 2331 HK 1,046 1,197 2 61 0.0 0.0 1.0 45.0 0.2 5.0 4.9 10.6 5.9 37.6 China Dongxiang 3818 HK 217 241 118 78 0.0 N/A 0.6 55.5 54.7 32.1 10.5 6.8 0.0 3.3 361 Degrees 1361 HK 658 751 76 82 0.0 N/A 1.2 40.9 11.6 10.9 9.8 10.0 17.9 31.9 Peak Sport 1968 HK 458 477 58 60 0.0 N/A 0.6 38.7 12.6 12.6 8.4 8.2 3.2 7.5 Pou Sheng Intl 3813 HK 2,300 2,504 64 118 3.1 0.0 0.6 33.3 2.8 4.7 10.8 13.4 (10.8) 2.6 Average 1,014 1,137 106 124 0.4 0.0 0.7 43.2 16.0 13.7 12.0 12.8 1.0 11.9

International Sportswear Nike Inc -Cl B NKE US 32,376 34,895 3,760 4,012 0.0 0.0 1.0 46.2 11.6 11.5 30.6 31.9 (6.1) (6.8) Adidas Ag ADS GR 15,490 17,608 581 909 5.3 8.7 0.7 48.3 3.7 5.2 16.0 16.6 (2.7) 5.9 Puma Se PUM GR 3,102 3,294 34 54 0.0 0.0 0.5 45.5 1.1 1.6 2.7 3.7 (1.9) 4.0 Under Armour-A UA US 3,963 4,933 233 269 32.3 33.7 1.0 48.1 5.9 5.5 11.6 14.6 (18.8) (19.9) Lululemon Ath LULU US 2,061 2,344 266 295 0.0 0.0 0.6 48.4 12.9 12.6 23.9 27.5 (11.6) (25.8) Asics Corp 7936 JP 4,090 3,813 98 129 5.9 0.0 1.4 42.5 2.4 3.4 3.9 6.9 7.9 18.4 Mizuno Corp 8022 JP 1,871 1,848 20 26 21.8 18.9 0.8 38.6 1.1 1.4 0.8 3.0 2.2 3.2 Average 8,993 9,819 713 813 9.3 8.7 0.8 45.4 5.5 5.9 12.8 14.9 (4.4) (3.0)

Sportswear OEM Yue Yuen Ind 551 HK 8,435 8,548 390 480 0.0 0.0 0.1 23.4 4.6 5.6 9.5 10.4 (10.1) (8.9) Win Hanverky 3322 HK 495 518 31 33 0.0 N/A 0.9 30.2 6.3 6.3 8.9 11.0 3.1 6.4 Pegasus Intl Hld 676 HK 75 N/A 1 N/A 0.0 N/A 0.9 12.3 1.8 N/A 1.0 N/A 1.0 (7.8) Kingmaker Foot 1170 HK 302 314 16 19 0.0 N/A 0.3 16.4 5.1 5.9 10.8 11.7 9.8 1.1 Average 2,327 3,127 110 177 0.0 0.0 0.5 20.6 4.5 6.0 7.6 11.0 1.0 (2.3)

Footwear Belle Intl 1880 HK 6,016 5,993 765 681 0.0 0.0 1.1 56.3 7.2 10.6 9.7 13.7 (11.5) (1.7) Stella Internati 1836 HK 1,770 1,599 121 83 0.0 0.0 0.3 21.0 6.8 5.2 10.2 8.5 1.4 0.9 Le Saunda 738 HK 256 238 19 17 0.0 N/A 0.6 66.0 7.5 6.9 9.6 8.2 8.0 14.3 Daphne Internati 210 HK 1,080 889 (49) (39) 0.0 N/A N.A 56.4 (4.5) (4.3) (11.8) (7.2) (3.8) (5.6) Average 2,281 2,180 214 185 0.0 0.0 0.6 49.9 4.3 4.6 4.4 5.8 (1.5) 2.0 Note: Prices are as of 27 Oct 2016 Source: Bloomberg, RHB

See important disclosures at the end of this report 8

ANTA Sports Products Ltd Hong Kong Company Update

28 October 2016 Consumer Cyclical | Sportswear

Figure 9: DCF valuation (CNYm) FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F FY24F FY25F Term Val. Valuation Date: 10/27/2016 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24 Dec-25 Time Period 1 2 3 4 5 6 7 8 9 10 Adj Time Period 0.16 1.16 2.16 3.16 4.16 5.16 6.16 7.16 8.16 9.16 EBIT 3,228 3,946 4,695 5,541 6,455 7,423 8,425 9,436 10,427 11,365 Multi-stage grow th rate 22.2% 19.0% 18.0% 16.5% 15.0% 13.5% 12.0% 10.5% 9.0% Tax Rate 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% Net Operating Profit After Tax (NOPAT) 2,389 2,920 3,475 4,100 4,777 5,493 6,235 6,983 7,716 8,410 Depreciation 154 325 325 384 447 514 583 653 722 787 ∆CapEx -650 -650 -650 -422 -491 -565 -641 -718 -794 -865 ∆Net w orking Capital -302 -296 -328 -387 -451 -467 -477 -480 -478 -469 Others 0 0 0 0 0 0 0 0 0 0 Free Cash Flow (FCF) 1,591 2,299 2,822 3,675 4,281 4,975 5,700 6,437 7,166 7,863 7,942 NPV* 1,561 1,996 2,168 2,499 2,575 2,648 2,685 2,684 2,643 2,566 21,600

DCF Valuation Terminal Value NPV of discrete forecasts 24,025 46.8% Terminal Grow th Rate 1.0% NPV of terminal value 21,600 42.1% WACC 13.0% Firm Value 45,624 89.0% Terminal Value FCF 7,166 Add: Net Cash/(Debt) 5,928 11.6% NPV of Terminal Value (End) 59,717 Less: Minority Interests -268 -0.5% NPV of Terminal Value (Today) 2,643 Equity Value (CNY) 51,285 100.0% CNYHKD 0.84 Equity Value (HKD) 61,054 Shares Outstanding 2,501 Value per Share (HKD) 24.00 Source: RHB

See important disclosures at the end of this report 9

ANTA Sports Products Ltd Hong Kong Company Update

28 October 2016 Consumer Cyclical | Sportswear

SWOT Analysis

 Top domestic brand in China  International brands (Nike,  Winning market share against domestic peers adidas, Under  Established R&D capabilities to deliver value-for- Armour) money for consumers expanding their  Time-tested execution abilities self-operated retail networks in China at an unprecedented pace  Licensed brand Fila to provide profit contributions after its recent operational turnaround  Large net cash stockpile allows for abundant M&A possibilities

 Beijing Winter Olympics 2022 to spur interest  Brand equity still unable to match that of international in sports brands  Total A&P budget overshadowed by international brands on a global basis

Recommendation Chart

Date Recommendation Target Price Price Price Close 2016-08-30 Neutral 19.0 21.4

27 Recommendations & Target Price 2016-07-11 Buy 19.0 15.2

0 0 0 0

. .

na 19 19 Source: RHB, Bloomberg 22

2 Buy Neutral Sell Trading Buy Take Profit Not Rated Oct-11 Feb-13 May-14 Aug-15

Source: RHB, Bloomberg

See important disclosures at the end of this report 10

ANTA Sports Products Ltd Hong Kong Company Update

Consumer Cyclical | Sportswear

RHB Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage

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ANTA Sports Products Ltd Hong Kong Company Update

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ANTA Sports Products Ltd Hong Kong Company Update

Consumer Cyclical | Sportswear

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ANTA Sports Products Ltd Hong Kong Company Update

Consumer Cyclical | Sportswear

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ANTA Sports Products Ltd Hong Kong Company Update

Consumer Cyclical | Sportswear

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