Why Does Anta'S Sports Revenue Growth Rate Outperform Its Domestic Counterparts?

According to the world clothing shoes and hats net, Hui Li securities issued Research Report.

Sports (02020) as China's leading sporting goods manufacturer, the agency believes that the company's future growth drivers mainly come from: 1) the sports industry benefits from the national strategy and consumption upgrading trend, and is expected to grow rapidly; 2) the company's multi brand and all pipeline strategy consolidates the way to take off in the future; 3) the operation capacity is the best and the management is excellent.

It is estimated that the sales growth rate of the company in 2017 and 2018 will be 21% and 25%. Assuming 22.93 times PE (Two-year historical average PE+0.5 times standard deviation), the target price will be HK $36.51, with a 15.3% rise.

(current price up to December 20th)

Domestic disclosure

Listed company sales information, the company is currently in China.

Share the first domestic sports shoes and clothing brand.

Since its listing in 2007, its operating income and net profit have achieved an annual compound growth of 17.27% and 18% respectively.

In 2016, the company's operating income was 13 billion 346 million yuan, 52% from clothing, and 45% from footwear products.

With the strategy of "single focus + multi brand + full pipeline", the company develops different brand marketing strategies with multiple brands covering different target consumer groups.

The company's revenue growth and operating conditions over the past three years are significantly better than those of domestic counterparts.

Multi brand consumer groups covering a wide range of consumer groups

Companies adhere to the "multi brand" strategy, expanding customer base to meet the needs of different customers.

The company's brand portfolio is aimed at consumers of different ages, covering from the public to the high-end market, providing functional and stylish leisure sports products.

As of the first half of 2017, the company has 9041 brand stores including Anta (including children), 869 FILA (including children), and 21 Descente brand stores.

(1) Anta & Anta children

It provides functional sports products for running, comprehensive training, basketball and football. The products are priced at around 200-500 yuan for middle and low income groups.

Shops cover the two or three tier cities in the country, mainly street shops, and will gradually increase in the retail market of shopping malls and department stores in the future.

The company has been providing children's sports products since 2008. The lowest price for children aged 0-14 is 79 yuan.

At present, children's shoes and clothing market is relatively scattered, but with the release of the two child policy, we expect Anta to realize the accelerated growth of children's clothing business by virtue of its inherent brand advantages and a wide range of street shops.

(2) FILA&FILA KIDS

Sports and leisure products are provided.

Since its acquisition of FILA brand in 2009, BELLE has rapidly expanded from about 200 stores to 869 stores in the first half of 2017, and stores are mainly located in high-end shopping centers and department stores in second tier cities. For high-end customers, the brand spokesperson is a famous film star Gao Yuanyuan.

FILA KIDS was established in 2015 to provide high-end footwear and apparel products for children aged 7 to 12 years.

The company will also open more FILA stores in potential cities in the future.

It is expected that with the economic recovery and the trend of consumption upgrading in the Chinese market, FILA brand is expected to continue to maintain rapid growth.

(3) Descente

It was introduced in 2016 by establishing a joint venture with Japan's Descente.

Descente outdoor products, including skiing, comprehensive training and running sporting goods, are featured in ski suit.

The brand currently has 21 brand stores, mainly located in the second tier cities in China. Membership system helps improve customer loyalty.

The 2022 Winter Olympics will be held in Beijing. The Chinese government has been promoting winter sports and plans to increase the number of people participating in winter sports to 300 million in the future.

The company's efforts to expand this market segment will help the company expand its product line and cover more consumer groups.

(4) others

The British fashion outdoor brand Sprandi, which was acquired in 2016, is the main product of walking shoes for low and middle income groups.

In 2017, we set up a joint venture with Korea Kolon to introduce Kolon to produce leisure style outdoor sports products.

In 2017, the company also purchased Hongkong children's clothing brand King Kow to expand children's wear product line.

We expect new brands to contribute more revenue in the future.

It is estimated that by the end of 2017, the number of Anta stores in China will increase to 9200 to 9300, and FILA stores will increase to 950 to 1000.

At the same time, DESCENTE will enter more first and second tier cities in the future. It is expected that by the end of 2017, there will be 50 to 60 stores in China.

Full pipeline development

The company adheres to a retail oriented strategy to strengthen retail management while developing online sales.

Distribution networks include street shops, shopping centers, department stores, outlets and e-commerce platforms.

The company set up shop according to the characteristics of different brand customers: Anta is mainly located in street shops, and is oriented to two or three line city's middle and low income customers. It can better adapt to customers' consumption habits. FILA and Descente are located in department stores and commercial centers of a second tier city, in order to connect with high-end consumer groups; Oteri J and electronic commerce platform are the pipeline to clean up inventory.

At the same time, the company has made great efforts to develop e-commerce sales, establish official sales websites, set up online stores in mainstream e-commerce platforms such as Tmall and Jingdong, and online sales are rising.

Online sales products are not only in season, but also in the same quarter of Anta, FILA and other exclusive online products.

The company also regulates the launch time, priority and style of products on e-commerce platform, and promotes the synergy between online and offline retailers, avoiding them competing with each other.

Excellent supply chain management

The company attaches great importance to efficient supply chain management.

The period from product planning to production and sale is 13 months.

The production of the company adopts the mode of self-produced and outsourced (OEM, ODM), and flexibly arranges the proportion of self production and outsourcing according to market changes and consumer preferences. In 2016, the proportion of shoes and garments produced by the company was 42.9% and 16.7% respectively.

The company arranges four orders every year, arranges production according to the results of the order meeting, and enhances the proportion of orders beyond order orders by strengthening the fast reverse mode, improving the merchantability of goods, and balancing consumer demand and inventory.

Generally speaking, the company will complete 80% of the order volume first, and the remaining 20% will be produced according to the sales situation, so as to adjust the market response and improve efficiency.

The company will push forward the construction of the logistics system. In early 2018, the new logistics center will be put into operation. The delivery time will be substantially shortened from the past one month to the fastest 48 hours. It will lay a solid foundation for the future development of wholesale and retail, e-commerce and other online and offline business models.

Sales are growing rapidly and operating efficiency is outstanding.

Since its listing in 2007, the company has achieved an average annual compound growth rate of 17.27% and a net profit growth rate of 18%, which is a fast growing industry leader.

We selected the data from 4 Chinese listed companies to calculate the average value of the industry and compared with Anta. The four companies include Lining (2331.HK), 603555.SH (XTEP), XTEP International (1368.HK), and 360 degree (1361.HK).

The results show that Anta's operating income and net profit growth over the past three years are significantly higher than the industry average level, sales gross margin has increased year by year, and in the first half of 2017 has reached 50.58%, much higher than the industry average gross profit margin of 43.06%.

The sales cost rate of the company has an upward trend, but the sales cost rate has improved in the first half of this year, and the proportion of advertising expenses in operating income is 9.3%, down 1.9 percentage points from the same period (1H16:11.2%).

Management cost control is better than industry average.

The company's current inventory turnover days are 68 days, lower than the average turnover days of the industry 76.9 days, accounts receivable account period is short, and the repayment ability is strong.

In addition, the company attached importance to R & D. In the first half of 2017, R & D expenses accounted for 5.8% of sales, up 1.4 percentage points over the same period (1H16:4.4%).

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Sporting goods industry is expected to continue to grow

With the improvement of urbanization level and the improvement of residents' education level, people's health awareness has gradually increased, and fitness habits have been increasingly cultivated.

According to the data of the National Bureau of statistics, from 2006 to 2016, the annual compound annual growth rate of our cultural, educational and sporting goods manufacturing industry was nearly 26%, and the total annual profit growth rate was 33.3%, with an average profit margin of 4.93%.

In 2016, the annual income of China's cultural, educational and sporting goods manufacturing industry was 1 trillion and 700 billion yuan.

In May 2016, the State General Administration of sport issued the "13th Five-Year plan" for sports development. It was determined that by 2020, the total scale of the national sports industry would exceed 3 trillion yuan, and the annual growth rate of the sports industry added value was obviously faster than that of the same period, and the proportion of GDP in the gross domestic product reached 1%.

From this rough estimate, there will be considerable room for development of China's sporting goods industry in 2020.

Valuation conclusion

We predict that the sales growth rate in 2017 and 2018 will be 21% and 25%, assuming that 22.93 times PE (two years' historical average PE+0.5 times standard deviation) will get the target price of HK $36.6, with an increase of 15.3%.

We recommend buying at bargain prices.

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