Anta Sports: Main Brand Speed Up, To Sell 1 Billion Euro Convertible Bonds

Recently, Anta Sports Products Limited (hereinafter referred to as "Anta sports") announced the four quarter and full year operation data. In the fourth quarter, Anta sports Anta brand, FILA and other brand retail sales increased by 10-20% higher, 50%-55% and 25%-30% respectively. In 2019, the retail value of Anta sports Anta brand, FILA and other brands increased by 10-20%, 55%-60% and 30%-35% respectively. In addition, the announcement also said that the 1 billion euro zero interest guaranteed convertible bond to be issued in 2025.

According to Fangyi Fang Feng Yi team analysis:


First, speed up the main brand.


(1) Anta brand, 2018Q1, Q2, Q3, Q4, 2019Q1, Q2, Q3, Q4 retail sales growth rate were 20-25%, low double-digit, double-digit, double-digit, double-digit, double-digit, double-digit, double-digit, and the growth rate of 2019Q4 retail sales further improved. In the whole year, the retail sales of the main brands in 2019 were the same as that of 10-20% in the same period last year, which was unchanged from the same period last year (10%-20% median). From the point of view of water splitting, the growth rate of 2019Q4 Anta big cargo line, children and online water flow is single digit, 25% or 40%+ respectively. Retail discount decreases slightly, and Treasury sales ratio is flat.


(2) non Anta brand, 2018Q1, Q2, Q3, Q4, 2019Q1, Q2 non Anta brand retail sales growth rate (mainly FILA) 80-85%, 90-95%, 90-95%, 80-85%, 90-95%, Q3, Q3, respectively, the growth rate is respectively, the growth rate is flat compared to the second quarter, other brands, the growth rate is slightly lower than the fourth quarter. In the whole year, FILA brand and other brands increased by 55-60% and 30-35% respectively in the whole year of 2019. FILA brands and other brands grew by 85%-90% during the same period last year. The overall high level of non Anta brands continued to slow down, but remained high. From the point of view of water splitting, 2019Q4 Fila products, Fusion, children, online and pipeline grew up to 40%+, 100%+, 70%+ and 70%+ respectively. Retail discount rate decreased slightly, and Treasury sales ratio was flat, of which FILA children library sales ratio optimization.


It is estimated that by 2020, all brands, Anta and FILA series CAGR will reach 15-20%, double digits and over 30% respectively.


Two, 2019 overall performance is in line with expectations:


(1) revenue grew rapidly, with sales of Anta brands and non Anta brands growing by more than 35%.


(2) the increase in profit is due to the increased contribution of retail business (gross margin is higher than wholesale business), and the ratio of operating expenses to total revenue is stable. In addition, it is estimated that the profits and losses of equity investments generated by Amer will not exceed 650 million loss (including less than 200 million yuan one-time acquisition cost and no more than 500 million yuan earnings loss). After considering the impact of Amer, the net profit of the 2019 companies is expected to grow to 30%+.


(3) the number of 2019 stores is expected to be: Anta (including children) stores look up to 10400-10500, FILA (including FILA KIDS/FILA FUSION) stores have 1800-1900 stores, DESCENTE stores can reach 130-140, KOLON SPORT stores are expected to reach 170-180, KINKOW stores are expected to reach 90-100, and Sprandi stores are expected to reach 140-150.


Three, issuing convertible bonds to optimize the debt structure:


(1) the company issued a notice in January 14, 2020 to issue a five year 1 billion euro zero coupon convertible bond with a guaranteed price of HK $105.28 / share, which is 40% higher than the closing price of the day before the announcement, which is about 42.7% higher than the average closing price of the last five consecutive trading days prior to the last trading day of the subscription agreement, which is about 46.1% higher than the average closing price of the last 10 consecutive trading days before the last trading day of the subscription agreement. In this way, 82 million 129 thousand and 600 shares can be converted into shares, accounting for 3.04% of the total issued shares, and 2.95% of the total shares after conversion. Net proceeds from the estimated net proceeds of the issuance of bonds (1 billion 2 million 500 thousand euros) and 82 million 129 thousand and 600 shares are expected to be HK $105.43 per share.


(2) provide additional funds to optimize the debt structure. The total amount of proceeds from the issuance of the bond is 1 billion 2 million 500 thousand euros. The company intends to use the money to refinance the existing debt (which is expected to replace the existing 850 million euro loan), working capital and other general corporate purposes, so as to improve the financial cost and debt structure.


Four, Anta sports core logic: multi brand continued landing, supply chain barriers steadily rising:


(1) product channel coverage is comprehensive and multi brand continues to advance. The company's products cover the public (Anta and Anta KIDS, Sprandi, NBA), middle and high-end (FILA, KOLON, KINGKOW, AntapluS), high-end (DESCENTE) brand, has formed a more complete price ladder, its products involved in comprehensive training, running, skiing and other 8 areas, the product is comprehensive. The acquisition of Amer Sports further enriched the company's brand matrix.


(2) R & D investment is leading and products are continuously being certified by consumers. The absolute value industry is the first to invest in R & D, and through the introduction of world-renowned designers and well-known IP to create popular explosions, the price of KT shoes is rising. The sale of old shoes is sold out, and the product strength and consumer recognition continue to improve.


(3) the main brand is growing steadily, and FILA is growing at a high speed. Through a series of channel reform, from 2014, the overall growth rate of the main brand is faster than that of the channel, which has become the main driver of revenue growth. The FILA brand has been growing faster than 50% over the past 2014-2019 years, and FILA KIDS and FUSION stores have expanded and FILA stores have been upgrading.


(4) multifaceted marketing, enhance brand influence reputation. Anta, a partner of the Olympic Committee of China for 2009-2022 years, has sponsored 24 Olympic Games in the 24 industries. The spokesmen include famous sports stars such as Thompson and Zhang Jike. FILA has sponsored the Hongkong Olympic team in China since 2009, signing Chen Kun, Gao Yuanyuan, Wang Yuan and other popular idols. The company has abundant sports and entertainment marketing resources, and its brand influence continues to improve.


(5) internal organizational reform, brand management is more focused, and synergy is gradually improving. 2019H1 brand will be divided into professional sports (Anta, Anta children, Sprandi), fashion sports (FILA, FILA KIDS, FILA FUSION), outdoor sports (DESCENT, KOLON SPORT) three brand groups, three brands have independent design, brand, sales and distribution functions.


In terms of investment proposals, Fang Yi Fang Feng Yi team expects the company to achieve net profit of 54.56/74.90/90.77 billion yuan in 2019/2020 /2021, an increase of 32.98%/37.28%/21.19% over the same period, corresponding to P/E for 33/24/20, and maintain a "highly recommended" rating.


In addition, the team also estimated the following risks: (1) the economic downturn exceeded expectations; (2) the sales of main brands were lower than expected; (3) the development of new brands was less than expected.