Anta Sports Was Hit By Short Selling Again, And The Stock Price Dropped 7%.

Anta sports (2020.HK), the leading sporting goods company in China, was attacked by short selling agencies again.

On the morning of July 8th, Anta sports was shorted by Muddy Waters Research (short selling company), with the highest intraday drop of 8.68%.

At noon, Anta sports announcements, the company's stock briefly suspended at the HKEx. Before the suspension, Anta sports shares reported HK $51.25 / share, down 7.32% from the previous trading day.

Muddy water company: Anta secretly controls its first class distributor's earnings data and can't believe it.

At the beginning of Anta sports short report, muddy first praised Anta sports's performance in operation and marketing. They believe that this is also the reason why "successful sportswear entrepreneur" - the famous Canadian Yoga sportswear retailer Lululemon founder Chip Wilson recently invested in Anta sports.

But then the conversation turned, and the report pointed out that "there is a fearful fact in all these good aspects." The report said investors should not rely on the financial situation of Anta sports. The reason why Anta sports can achieve the industry's leading business profit margin is not because its business condition is very good, but because Anta sports uses a lot of secretly controlled first class distributors, deceitfully raises the profit rate.

The report emphasizes that muddy water has evidence that Anta secretly controls the number of materials it sells. In this report, muddy water provides documentary evidence that Anta sports secretly controls 27 distributors. At least 25 of them appear to be first-class distributors. The total number of primary distributors ANTA control may exceed more than 40 of the 46 companies in the company. The secret controlled distributors seem to account for about 70% of Anta brand sales.

According to the report, Anta insists that its first tier distributor is an independent third party and is not a fact. Anta's control of its primary distributor is well known among Anta's senior managers. The report mentioned that Anta concealed its control over distributors. Anta's senior managers often referred to dealers as "subsidiaries". Muddy Shui believes that Anta controls these subsidiaries to manipulate the financial situation of their reports.

The report also pointed out that one of the obvious examples is that Wu Yonghua, the executive director of Anta's sales for many years, is always the supervisor of one of Anta's largest distributors, Wu (Yonghua). In addition, four former senior managers of Anta and a former manager of a major distributor clearly stated in our subsequent interview that Anta controls the distributors.

It is worth noting that muddy water pointed out that "this is only the first to expose the series of reports of Anta fraud."

Anta responded: the report contains false and misleading elements, and it will be further clarified after Clarification Announcement and resumption.

Affected by the short selling of Muddy Waters Research, Anta sports opened today, and intraday shares plunged to 8.68%.

At noon, Anta sports announcements, the company's stock briefly suspended at the HKEx. The notice stated that "the shares of the company have been temporarily suspended from the The Stock Exchange of HongKong Limited on the afternoon of July 8, 2019, pending the release of the company's clarification on a report which the company considers to contain false and misleading information."

Before the suspension, Anta sports shares reported HK $51.25 / share, down 7.32% from the previous trading day. A total of 11 million 110 thousand shares were traded, amounting to HK $581 million, and the market value evaporated about HK $10 billion 900 million, with the latest total market value of HK $138 billion 400 million.

In addition, the Anta Investor Relations Department responded to the media in the afternoon, "further clarification and announcement will be made after further clarification and resumption."

Three short selling in 13 months

In fact, this is not the first time Anta sports has been shorted by short selling.

In May 30th of this year, Blue Orca Capital, a short selling organization, proposed the short selling of Anta sports in the Sohn meeting of the Fund meeting held in Hongkong. It believed that the company exaggerated the retail sales revenue of its brand Fila (FIE), and estimated that Anta sports share price would have a 34% decline, with a value of HK $32.93 per share.

When the news came out, diving in Anta sports intraday fell 12%, hitting 43.5 Hong Kong dollars, the biggest decline since last October.

Before the next day, Anta sports issued two announcements, strongly denied this false speculation, and disclosed that the related party subscribed for new shares, accounting for 0.59% of the total share capital. Subsequently, its stock price opened more than 1.8%, and then increased rapidly to nearly 6%, closing at HK $48 / share, up 2.24%.

In addition, in June last year, GMT Research Limited, a short selling organization, also sold Anta sports, questioning Anta's sporting profit margin "incredibly high".

In this regard, Anta sports also strongly denied that, but this time, "doubt" did not significantly affect Anta's share price.

Anta's profits are "incredibly high"?

13 months, three short selling, all of them point to Anta's "profit margin". So, is Anta's profit really "incredibly high"?

In February 26th, Anta sports released its results for the year ended December 31, 2018. Data show that in 2018, group revenue reached RMB 24 billion 100 million yuan, an increase of 44.4% over the same period last year. Gross profit was 12 billion 687 million 300 thousand yuan, an increase of 54%. Earnings data showed that Anta's sports business profit margin was 20.57%.

What is the operating profit margin of 20.57%?

According to Wind statistics, Anta's 2018 operating profit margin ranks seventh in 142 textile, clothing and luxury industries in Hongkong, while the median value of the whole industry is 2.06%.

The ones in front of Anta are Wanxing holding, Tan carpenter, Heng Teng network, China Leon, Shen Zhou International, CABBEEN. Lining, who is well known and has similar business to Anta sports, has a profit margin of only 6.43% in 2018.

If compared with the A, textile, clothing and luxury industry enterprises, Anta sports 2018 business profit margins can also be ranked sixth.

Relative to the short selling agency's query, the securities companies and other research institutions are almost uniformly optimistic about Anta sports. Wind statistics show that since February 27th this year, 29 agencies have released relevant research reports on Anta sports, of which only CLSA has given Anta sports "sell" rating, and the target price has dropped to HK $42 from HK $47 per share.

Of the remaining 28 institutions, 24 were given "buy", "overweight", or even "highly recommended" rating. Among them, Goldman Sachs, JP Morgan two agencies will Anta sports target price of HK $66 per share.

Among them, China Galaxy International Securities believes that after examining the recent performance of Anta, FILA and Amer Sports, it is estimated that Anta's earnings per share will achieve a compound annual growth rate of 24% between 2018 and 2021.

Tianfeng textile LV Ming team pointed out that Anta sports firmly implement the "single focus, multi brand, all channel" strategy. Anta brand has maintained steady growth through product and channel upgrading in recent years, and ranks first tier in the domestic brand. FILA leads the sports fashion track. In 2018, the annual retail sales growth and shop opening speed exceeded the market expectations. With the growth of sports demand and the growth of FILA consumer groups, the FILA data in the first quarter of 2019 were still bright. In the case of higher base numbers, it still maintained a relatively high growth rate over the same period. It is estimated that FILA will still maintain relatively high growth rate in the next two to three years. It is expected that DESCENTE and KOLON will be profitable in 2019. Other brands such as Kingkow will also break through the breakeven point from 2020 to 2021 to make profits. Many brands make joint efforts to open up long-term growth space for Anta group.