Anta Fight The Air Force Again: Can Muddy Water Fish This Time?

Yesterday's Hong Kong stock market was in a state of panic. Weekend double thunder triggered a black Monday in the A and Hong Kong stock market during Asian trading hours.

On the basis of some small stocks that fall by 70%-80% on the day, it seems that the largest sporting goods Anta sports (2020-HK) in China, though not the most serious, is only about 10000000000 of the market value in half a day. The decline in the share price of the sports brand came from the short selling report issued by the famous short selling agency muddy water in July 8, 2019.

The Muddy Waters, the US short selling agency, launched its announcement in 2011 on the Sino-Forest Corporation, a Canadian listed company, which led to the delisting of the market. In December 2016, it released its short selling report for the Hui Shan dairy industry. But this time, the lethality seemed to have no expectation of horror.

A series of double losses trigger stock price volatility

In the first report of July 8th, muddy water has been announced in advance, indicating that it has prepared a series of corroboration for Anta, and it will be thrown out one after another.

First strike: closely related to distributors

The first report accused Anta of winning the industry's leading profit margin because it did not operate well, but secretly controlled a primary distributor to distort its reporting profit margin. The short selling agency listed documentary evidence to testify that Anta secretly controlled 27 distributors, at least 25 were first tier distributors, and pointed out that the total number of Anta's approximately 46 distributors was likely to reach more than 40.

As soon as the report came out, Anta's share price plunged directly, plunging 9%, to HK $50.80. Subsequently, Anta announced that the suspension was ready to meet muddy water. The share price closed before the suspension was HK $51.25, or 5.6%, compared with the Hang Seng Index closed down 1.54% on the day.

Clarification: no intimacy

Before the opening of the market this morning, Anta issued a Clarification Announcement, strongly denying the allegation of muddy water. The 25 distributors in the muddy water report were third party with no affiliation, and each distributor owned its own management team and made independent business decisions. There was no mutual control relationship between the distributors. Anta had passed the distribution agreement to regulate the relationship with the distributors, and there was no management fee sharing for all distributors in China to adopt a unified wholesale discount policy. Distributors would call Anta's subsidiaries or branches to promote their businesses, while they encouraged distributors to share their core values and business management, but this had no legal effect; Anta allowed distributors to use their brand identities and e-mail addresses to facilitate the promotion of business.

At the opening of this morning, Anta's shares rose slightly after adjusting slightly, which rose 2.44% to HK $52.50.

Second strikes: plagiarism of listed assets

Shortly after opening, muddy water issued second short selling reports, which means that Anta made use of the funds raised by the initial public offering to expand the international brand retail business of Shanghai frontline sporting goods Co., Ltd., which signed a distribution agreement with Adidas, Reebok and kappa, and then stripped the listed companies with a substantial discount from the frontline by proxy.

Clarification: deny accusation

Anta issued second clarification notices at noon break, strongly denied the allegations, and alleged that the allegations were not accurate and misleading. It will retain the right to take legal action against muddy water.

At the end of the afternoon, Anta shares rose slightly and rose to 0.2% today, closing at HK $51.35, compared with a 0.76% drop in the Hang Seng Index today. Judging from today's market trend of Anta's rise, investors seem to be reluctant to sell accounts of muddy water.

Why is Anta frequently attacked by air strikes?

Over the past year, Anta has been attacked by three short selling agencies:

1) in June 12, 2018, GMT Research accused nine of the 16 Chinese sports Brand Company listed after 2005. Nine of them were found to be financially fraudulent, all of them from Fujian. The main feature is that their profitability is better than that of international counterparts such as Nike. It is believed that when the price of the product is far below that of the international counterparts, the profitability is better than that of the industry giants. The remaining seven companies, including Anta, XTEP (01368-HK) and 31st degree (01361-HK), all have similar characteristics to those certified financial fraud companies, all of them from Fujian.

2) in May 30, 2019, Soren Aandahl, founder of the Blue Orca Capital, a 01910-HK Blue, was attending a forum when it pointed out that there were corporate governance problems in Fujian listed companies, and FILA's revenue was more than 40%. The sales efficiency of branches was far higher than that of international counterparts.

3) in July 8 and 9, 2019, muddy water accused Anta of having a close relationship with distributors and associated companies plagiarizing listed assets.

Why is Anta repeatedly sniping, what is there inside the cat?

Low performance transparency

To sum up, the main accusation against Anta by the short selling organization is the result of fraud, especially the non Anta brand acquired by FILA and other foreign acquisitions, the low transparency of the performance disclosure, and the improper insider trading of the insider. Anyway, in the final analysis, it is said that Anta and other Shanxi Merchants "left hand to hand" too many transactions, pumping too many opportunities.

Built in Jinjiang, Fujian, Anta started from a shoemaking workshop. After its listing in Hongkong in 2007, it mainly runs Anta brand, and distributes international sporting goods such as Adidas, Reebok and kappa, but the latter accounts for a relatively low proportion of revenue and recorded a partial loss.

In 2009, Anta took over FILA's Greater China business from BELLE international. After taking over FILA, Anta's contribution to FILA was less than 10% in the first few years, so it was not listed independently. However, in recent years, Anta has obviously seen its efforts to expand FILA business, and the number of FILA shops has expanded from 220 in 2011 to 1652 in 2018.

In addition, Anta has expanded its international brand portfolio through cooperation and acquisitions (see table below). Recently, it is also co purchasing Lululemon Chip Wilson and Tencent (0700-HK) to acquire Amer Sports, a high-end sports Brand Company in Finland. From the perspective of Anta's aggressive attitude, the development of the non main brand business can be spared no effort, and the retail sales of these non Anta brands are much higher than that of Anta brand. In the first quarter of 2019, the retail sales of non Anta brands increased by 65%-70%, while the Anta brand's retail sales increased by only a low growth rate of 10%-20%.

On the one hand, all kinds of aggressive acquisitions and expansion data, while never disclosing the specific data and performance of Anta and non Anta brand, it has to be reminiscent of whether there is any mystery.

Managing these first-line international brands relies heavily on Anta's marketing channels in the Chinese market. Regardless of whether there is a secret relationship between Anta and distributors, the key to the success of a brand business is the lack of channels for sales and the ability to decide everything.

Of course, from the point of view of investors with information asymmetry, if this relationship is not exposed to the sun, resulting in unfair treatment, they will not be willing to hold Anta's stock again. This is also the reason why short selling agencies have repeatedly sold private enterprises with poor governance.

Anta provided little information about the company's own detailed operation. Two years ago, Anta would also announce the same store sales growth every quarter, but now it will only provide the total sales growth data based on Anta brand and non Anta brand. The specific income and performance data of these two businesses are taboo. Investors can only get a bit of insight from the evidence that the short selling agencies have spent energy and resources.

When a founder, a controlling person and a manager are the same person, the low transparency will inevitably lead to the broad imagination of the short selling organization, and Anta's counterattack is often indifferent, without detailed data and clear evidence support.

Share prices are high.

The latest three short selling agencies issued the short selling report time, coincided with the Anta stock price reached the high level, see the table below. Short selling agencies usually borrow short sellers, publish short selling reports, and then make profits in the fall of share prices, that is to say, short selling agencies have begun selling before selling short selling organizations. In June 14, 2018, Anta's share price was HK $45.15, while Anta's share price reached a record high of HK $49 the day before. From the end of April to the beginning of May, Anta's share price had been above HK $50, and reached a record high of HK $57 in April 26th. But by May 30, 2019, Anta's share price was HK $46.95. 6 after mid month, Anta's stock price has been above HK $50, so it is easy to understand muddy water's behavior.

epilogue

There is an idiom in "Han Shu" that "there is no fish in the water until the Qing Dynasty". If the market is clear to pure, then there will be profit opportunities. The asymmetry of information leads to the price difference between the market and the interests of investors.

The West uses "bottom fishing" to describe "bottom up", and the name of Muddy Waters is the combination of the above two meanings.

From the above share price chart, we can see that before the short selling report was released, the stock price of Anta has reached a high level. Is there any evidence that the muddy water still has the bottom of the container? Let's wait and see.