Anta Sports Benefit From Strong Demand In Two Or Three Tier Cities

Anta sports (2020.HK) announced its annual performance for 07 years.

Benefit from the increase in sales and average selling prices.

Turnover increased 1.5 times to 3 billion 182 million yuan.

Net profit increased 2.6 times to 538 million yuan.

We believe that Anta will become the biggest beneficiary of the two or three line city's fast growing sportswear market, and its performance will maintain a good development.

The target price is HK $9.7 for the first time.

Give a "buy" rating.

Gross margin and net profit margin increased considerably.

The company's products are divided into Anta brand products and international brand products.

According to the contribution of turnover.

Anta products accounted for 93.9%., divided into three categories: footwear, clothing, accessories and so on.

International brand products mainly distribute international brands such as Adidas, Reebok and kappa.

Anta products are located in the mass market, mainly including families whose monthly income is around 2000 yuan.

According to the National Bureau of statistics, we predict that Anta's target market will cover more than 80% of the urban population and 10% of the rural population.

A total of more than 500 million people.

Instead of selling products directly to consumers, Anta sells Anta products to distributors in the form of wholesale.

Distributors rely on authorized Anta retail outlets to distribute products.

By the end of 2007, Anta had 39 distributors.

Anta distributors directly operate or appoint third party retail operators. As of 2007, Anta distributors and indirect management of 4716 third party retail operators.

According to the brand, the company's turnover is divided.

Anta brand contributes most of its business sales.

International brands are in the initial stage, accounting for only 6.1%.

According to the company's turnover, the footwear products account for the largest share of turnover.

Although the proportion in 2007 was lower than that in 2006, it still reached 52.9%. The turnover of clothing products increased fastest and increased by 234.6% in 2007.

The proportion increased significantly from 32.8% in 2006 to 43.1% in 2007.

Because of brand promotion.

The average selling price of the company increased considerably.

The average selling price of footwear products increased by 29% to 88 yuan in 2007 compared with that of the previous year, and the average selling price of clothing products increased by 15% to 53.6 yuan over the same period. The price of footwear and clothing products in 2008 will increase by 16% and 14% respectively.

In 2007, the gross profit margin of the company as a whole and various products increased, and the gross margin remained at 33.2%.

Compared with the same period last year, 25.1% percentage points increased by 8.1 percentage points.

The gross margin of Anta brand increased the most, from 25.1% in 2006 to 33.9% in 2007.

In the future, we believe that as the company's brand upgrades, the price increase of single products will continue to uplift, and the gross margin level in 2008 will be slightly increased to 33.8%.

Benefit from the two or three tier cities.

We believe that during the "11th Five-Year" period.

Even in the next 20 years of building a well-off society in an all-round way, the general path of the development of China's sports industry should be chosen as follows: the core of a few primacy cities (Beijing, Shanghai and Guangzhou) is guided by the Yangtze River Delta, the Pearl River Delta region and the Beijing Tianjin Hebei region.

Take the urban belt with rapid economic development as the basis.

Take the east to the West and the city to drive the rural development road.

It is estimated that the market size of the two or three tier sports goods market will reach about 30 billion -400 billion yuan in 2008. These markets will be dominated by medium and low end products. The market structure will be 30% high-end products, 30% mid end products and 40% low-end products.

And Anta positioning low-grade brand, focus on the development of footwear products. Will become the second line.

The beneficiaries of the three line city's rapidly growing sports apparel market.

The sales network is expanding steadily.

In 2007, Anta had 4716 stores.

The management level of retail outlets in 2008 was 5300, with a net increase of 800. The number of international brand outlets will increase from 170 in 2007 (200 below expected) to 230-250, with an average sales area rising from 80 square meters at the end of 2006 to 92 square meters in 2007.

Distributor management is more efficient.

Anta manages the sales network through 6 regional marketing centers,.39 distributors.

In 2007, the proportion of self owned stores owned by distributors increased to 30% from 21% in 2006.

The tightness of management is improved.

In addition, the company began to decide whether the discount rate would vary from 41%-43% according to the proportion of large distributors (larger than 120 square meters), the proportion of self owned stores and the order quantity.

In the short term, Anta is more explosive than Lining (2331.IlK).

In the short term, in China, a highly competitive and low concentration market, sports goods manufacturing in China also has considerable cost advantages.

The integration of Anta's manufacturing links in the industry chain F's self production ratio reached.62.5%1 in 2007, which is conducive to raising the gross profit margin.

In addition, Anta is mainly targeting the mass market in the context of the upgrading of consumption structure.

It will become the biggest beneficiary of the two or three tier city's fast growing middle end market.

In the long run, Anta's brand effect and product mix still need some time to build.

Lining's brand effect and operation mode are more durable.

The advantage of Lining's brand is more obvious. After 2001, Lining's brand focus work mainly focused on brand personality and positioning, and the value of the target customers coincided, and achieved good results.

Another advantage of Lining is in its "light asset management" model.

The light assets management mode has greatly reduced the company's capital investment.

In particular, the amount of fixed assets in the production field.

So as to increase the rate of return on capital.

From the perspective of industrial chain, light asset management also integrates the two ends of the industrial chain better. Its core competitiveness is also reflected in the rapid development of the products brought by the two ends.

High added value and more successful brand and marketing.

In the long run, Lining's brand effect and operation mode are more durable.

Earnings forecasts and valuations.

We are optimistic that Anta will be the biggest beneficiary of the two or three line city's fast growing sporting goods market.

The performance will be well maintained. The turnover in 2008 and 2009 will increase by 52.1% and 47.2% to 4 billion 840 million yuan and 7 billion 130 million yuan respectively, with earnings of 0.29 yuan and 0.45 yuan per share respectively.

We expect Anta's net profit to maintain a CAGR of 39.8% in the next 3 years.

Compared with Lining, because of low positioning and weak brand effect, we think Anta valuation has a 25% discount to Lining.

A target price earnings ratio of 30 times, according to the 2008 forecast earnings per share of 0.29 yuan, the first target price of HK $9.7, to "buy" rating.