Anta Delivers Strong H2 Results

Narrow-moat Anta Sports’ 02020 second-half 2022 results were better than our and the consensus estimates. Operating profit came in at CNY 5.4 billion, beating Refinitiv’s estimate by 15% and representing a year-over-year increase of 7%. With COVID-19-related challenges now in the rearview mirror, 2023 is set to be a strong recovery year for Anta. As we fine-tune our near-term forecasts, our fair value estimate of HKD 141 is unchanged. We view the shares as undervalued, trading at a 30% discount to our fair value estimate at the close of trading March 21.

In the second half of 2022, the group recorded 4% year-over-year revenue growth. By brand, the namesake Anta brand increased sales by 7%, while the fashion-forward Fila brand declined 2%. The remaining premium outdoor brands (including Descente and Kolon Sport) delivered growth of 24%. China’s zero-COVID policy was the primary drag on growth in the second half, as up to 40% of the group’s stores temporarily closed in November. Weaker economic conditions also led to reduced spending, especially on discretionary fashion items such as those offered by Fila. Operating margin improved slightly to 19.6% from 19.2% in the same period last year, but we attribute that mostly to one-off savings such as a reduced advertising budget.

As for 2023, management sounded optimistic about demand recovery. According to management, sales of the Anta and Fila brands both returned to year-over-year growth in the first week of January. Discount levels have also narrowed in the first quarter of 2023, and management expects industry pricing to normalize over the next couple of months. Management said that overall sales growth has returned to positive territory in the first quarter of 2023, and we expect sales growth to accelerate as the low base effect (from the Shanghai lockdown) kicks in.