What Is The Reason Why Anta Sports Revenue Growth Is Better Than That Of Domestic Peers?

? ? Anta sports, as China's leading sporting goods manufacturer, continues to grow because of these four factors.

It is learned that Huili securities released a research report that Anta sports, as a leading sporting goods manufacturer in China, believes that the company's future growth motivation is mainly due to: 1) the sports industry benefits from the national strategy and consumption upgrading trend, and is expected to grow rapidly; 2) The company's multi brand and whole pipeline strategy tamps the road to take off in the future; 3) The operation ability is the best in the industry and the management is excellent.

It is estimated that the sales growth rate of the company in 2017 and 2018 will be 21% and 25%. Assuming that 22.93 times of PE (Two-year historical average PE + 0.5 times standard deviation) gets the target price of HK $36.51, with an increase space of 15.3%, it is given the "overweight" rating, and it is suggested to buy on bargain（ Current price as of December 20)

According to the disclosed sales information of domestic sports shoes and clothing listed companies, the company is the first domestic sports shoes and clothing brand with the largest market share in China. Since the company was listed in 2007, its operating income and net profit have achieved an average annual compound growth of 17.27% and 18% respectively. In 2016, the company's revenue was 13.346 billion yuan, 52% of which came from clothing and 45% from footwear. The company takes "single focus + multi brand + whole pipeline" as the strategy, covers different target consumer groups with multiple brands, and formulates different brand marketing strategies. The company's revenue growth and operation in recent three years are significantly better than that of domestic peers.

Multi brand covers a wide range of consumer groups

The company adheres to the "multi brand" strategy, constantly expanding the customer base to meet the needs of different customers. The company's brand portfolio for different age groups, covering from the public to the high-end market, provides functional and fashionable leisure sports goods. As of the first half of 2017, the company has 9041 Anta (including children) brand stores, 869 FILA (including children) stores and 21 Descente brand stores.

(1) Anta & Anta children

It provides functional sports goods for running, comprehensive training, basketball and football. The products are aimed at low and middle income groups, and the price is about 200-500 yuan. Stores cover the second and third tier cities in China, mainly street shops, and will gradually increase in the retail network of shopping malls and department stores in the future. Since 2008, the company has provided children's sports products. For children aged 0-14, the lowest price is only 79 yuan. At present, the children's shoes and clothing market is relatively scattered, but with the opening of the two child policy, we expect Anta to realize the accelerated growth of children's clothing business by virtue of its inherent brand advantages and extensive Street store channels.

　　(2)FILA&FILA KIDS

Provide sports goods with fashionable and leisure style. Since Belle Group acquired FILA brand in 2009, it has rapidly expanded from about 200 stores to 869 stores in the first half of 2017, and the stores are mainly located in high-end shopping centers and department stores in first and second tier cities. For medium and high-end customers, the brand spokesperson is the famous movie star Gao Yuanyuan. Founded in 2015, FILA Kids provides high-end footwear and apparel products for children aged 7-12. In the future, the company will open more FILA stores in potential cities. It is expected that with the economic recovery and the general trend of consumption upgrading in the Chinese market, FILA brand is expected to continue to maintain rapid growth.

　　(3)Descente

In 2016, it was introduced by establishing a joint venture with Descente of Japan. Descente produces professional outdoor products, including skiing, comprehensive training and running sports goods, featuring ski suits. At present, there are 21 brand stores, mainly located in the first and second tier cities in China. The adoption of membership system is conducive to improving customer loyalty. The 2022 Winter Olympic Games will be held in Beijing. The Chinese government has been promoting winter sports. The plan points out that the number of people participating in winter sports may increase to 300 million in the future. The company's efforts to expand this market segment will help the company expand its product line and cover more consumer groups.

(4) others

Sprandi, a British fashion outdoor sports brand, was acquired by the company in 2016. Its main product is walking shoes, aiming at low and middle income groups. In 2017, it set up a joint venture with Korea Kolon to introduce Kolon to produce leisure outdoor sports products. In 2017, the company also acquired the Hong Kong Children's clothing brand King kow to expand its children's wear product line. We expect new brands to contribute more revenue in the future.

It is estimated that by the end of 2017, the number of Anta stores in China will increase to 9200-9300 and that of FILA will increase to 950-1000. At the same time, Descente will enter more first tier and second tier cities in the future. It is expected that by the end of 2017, it will have 50 to 60 stores in China.

Pipeline development

The company adheres to the retail oriented strategy, strengthens retail management and develops online sales. The distribution network includes street shops, shopping centers, department stores, outlets and e-commerce platforms. The company set up stores according to the characteristics of different brands of customers: Anta mainly focuses on street shops and faces low-income customers in second and third tier cities, which can better adapt to customers' consumption habits; FILA and Descente are located in department stores and commercial centers in first and second tier cities to connect with high-end consumers; Outlets and e-commerce platforms are channels to clear inventory.

At the same time, the company vigorously develops e-commerce sales, establishes official sales website, and sets up online stores on mainstream e-commerce platforms such as tmall and Jingdong, and online sales are rising. In addition to off season inventory, online sales products also include Anta, FILA and other brands of the same season and online exclusive contribution products. The company also regulates the launch time, priority and style of products on the e-commerce platform, so as to promote the synergy between online and offline retailers and avoid their competition with each other.

Excellent supply chain management

The company focuses on efficient supply chain management. The cycle from planning to production and marketing is 13 months. The company's production adopts the mode of combining self production with outsourcing (OEM and ODM). According to market changes and consumer preferences, the proportion of self-produced and outsourcing shoes and clothing of the company in 2016 was 42.9% and 16.7% respectively.

The company arranges four order meetings every year, arranges production according to the results of the order meeting, and continuously increases the proportion of replenishment orders beyond the orders in the order meeting by strengthening the fast reaction mode, so as to improve the marketability of goods and balance the demand and inventory of consumers. Generally speaking, the company will complete 80% of the order quantity first, and the remaining 20% will be produced according to the sales situation, so as to adjust with the market response and improve the efficiency.

The company promotes the construction of logistics system. At the beginning of 2018, the new logistics center will be put into operation, and the delivery time will be greatly shortened from an average of more than one month in the past to the fastest 48 hours, which will lay a solid foundation for the development of online and offline full business models such as wholesale, retail and e-commerce in the future.

Rapid growth in sales and outstanding operational efficiency

Since its listing in 2007, the company has achieved an average annual compound growth rate of 17.27% and a net profit growth rate of 18%. We selected the data of four Chinese listed companies to calculate the industry average value and compare with Anta. The four companies include Li Ning (2331. HK), guirenniao (603555. SH), Tebu International (1368. HK) and 361 degree (1361. HK). The calculation results show that the growth rate of Anta's operating revenue and net profit in the past three years is significantly higher than the average level of the industry. The gross profit rate of sales has increased year by year, reaching 50.58% in the first half of 2017, which is far higher than the industry average gross profit rate of 43.06%.

The company's sales expense rate has an upward trend, but the sales expense rate has been improved in the first half of this year. The proportion of advertising expenses in the operating revenue is 9.3%, with a year-on-year decrease of 1.9 percentage points (1h16:11.2%). The management cost is well controlled, which is lower than the average level of the industry. The current inventory turnover days of the company are 68 days, which is 76.9 days lower than the industry average turnover days. The accounts receivable period is short and the collection ability is strong. In addition, the company attaches great importance to R & D. in the first half of 2017, R & D expenses accounted for 5.8% of sales, up 1.4% year-on-year (1h16: 4.4%).

　　 Sporting goods industry is expected to continue to grow

With the improvement of urbanization level and the improvement of residents' education level, people's health awareness is gradually enhanced, and fitness habits are increasingly formed. According to the data of the National Bureau of statistics, from 2006 to 2016, China's cultural, educational and sporting goods manufacturing industry's annual average compound growth rate was nearly 26%, the total profit was 33.3%, and the average profit rate was 4.93%.

In 2016, the annual income of China's cultural, educational and sports goods manufacturing industry was 1.7 trillion yuan. In May 2016, the State Sports Administration issued the 13th five year plan for sports development, which determined that by 2020, the total scale of the national sports industry would exceed 3 trillion yuan, and the annual growth rate of the added value of the sports industry would be significantly faster than the economic growth rate of the same period, accounting for 1% of the GDP. According to the rough estimation, there is still considerable space for the development of China's sporting goods industry by 2020.

　 Valuation conclusion

We forecast that the sales growth rate in 2017 and 2018 will be 21% and 25%. Assuming that 22.93 times of PE (Two-year historical average PE + 0.5 times standard deviation) gets the target price of HK $36.6, with an increase space of 15.3%, and the "overweight" rating. Buying on the cheap is recommended.

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