Textile And Garment Industry: The Medium And Long Term Investment Value Of Lining And Anta From The Valuation Perspective

After the outbreak, the market is more concerned about the overall recovery of the industry and the changes in short-term data. This report hopes to jump out of the short-term data, and explore the market drivers of two companies' valuation drivers, differences, mid-term valuation centers and investment value from a more long-term perspective, providing new perspectives for investors.

Core view

Looking back at the historical valuation trend of Lining and Anta, we find that the valuation center of the two companies has increased substantially since 2019, but there are differences in the logic of promotion: (1) the main logic of Lining's valuation improvement is "profitability Plus + the increase in revenue driven by the tide of state". From the comparison of the historical mean value and the two dimensions of peer competition, we expect that Lining will have more than 4 PCT profitability in the future. With regard to the tide of state, we believe that under the current macro situation and the iteration of the main consumption crowd, the tide of the state is likely to exist in the consumption field for a long time, and the driving force of the valuation of the company will continue. (2) the main logic of Anta's valuation improvement is multi brand and internationalization strategy, especially FILA revenues continue to exceed market expectations. Looking forward to the future, we believe that the future FILA performance will not exclude the possibility of exceeding expectations, benefiting from the improvement of inefficient stores, the upgrading of footwear categories, the moderate expansion of stores and the extension of multiple series. In addition, although the market is worried about the short-term impact of overseas epidemic and the cultivation time of the Chinese market, we believe that the scarcity of many quality brands of Amer superimposes the company's excellent multi brand operation capability. The mid term Amer will bring significant value to the company.

Why is Lining's short-term valuation higher than Ann? We think there are two main reasons: 1, Lining has a higher certainty of improving profitability. PE implies the expectation for growth next year. According to Bloomberg data, after 2018, Lining's long-term PE coincides with that of Anta's PE in the next year. 2, Lining brand recognition is high, in the domestic counterparts pay more attention to originality, has certain scarcity.

Where are the middle and reasonable valuation centers of Lining and Anta? We believe that the competition pattern of the domestic sports apparel industry has initially approached the foreign market, and the company with genuine brand power will finally stand out and enjoy the valuation premium. Anta and Lining are the only two sports apparel companies that really realize brand upgrading in China's domestic enterprises. Among them, Anta relies on extensive acquisitions and multi brand internationalization to achieve brand upgrading. Lining's brand recognition is relatively high. At the same time, it relies on endogenetic cultivation of "China Lining" brand to continuously enhance brand influence. We expect that in the future, Lining and Anta's valuation system is expected to switch to Nike ADI's PB-ROE from the current PEG, which is expected to remain at 25-30 times and 20-25 times the valuation level in the medium and long term.

Looking at the future, how do we look at the long-term investment value of Lining and Anta? Taking into account the overall growth rate of the industry, the competition pattern, the company's future planning and the historical compound growth rate, we will make a general calculation from the two dimensions of PE valuation and net profit growth. The initial conclusion is as follows: Lining: PE valuation is expected to maintain about 25-30X in 2024. Net profit growth, the 2019-2024 compound growth rate of about 24%; Anta: PE valuation, in 2024 Anta, FILA and Amer were maintained at 20-25X, 25-30X and 22-28X, net profit growth, the 2019-2024 compound growth rate of about 17%.

Investment proposals and investment targets

We keep optimistic about the high sportswear in the sports apparel industry, as well as the long-term growth space of Lining and Anta. We recommend Lining (02331, buy) and Anta sports (02020, buy). We suggest that we pay attention to Tao Bo (06110), Shenzhou International (02313, buy).

Risk warning

The possible impact of economic slowdown on sportswear retailing, the risk of two outbreaks at home and abroad, the management challenges and financial fluctuations of international mergers and acquisitions and multi brand development, and the risk that Lining Anta's future performance is less than expected;