Hong Kong-listed Anta Sports Products principally engages in the design, R&D, manufacturing, marketing and sales of professional sports products, including footwear, apparel and accessories.
The company, the world’s largest sports equipment maker by revenue, has three main brand groups based on use: performance sports brands, fashion sports brands and outdoor sports brands. Some of the brands in the company’s portfolio include Anta and Fila. The company is also the largest shareholder of New York-listed Amer Sports, a global group of iconic sports and outdoor brands. Examples of brands in Amer’s portfolio include Arc’teryx, Salomon, Wilson, Peak Performance and Atomic.
The thesis for investing in Anta is that it is a fundamentally sound company with good prospects of capturing addressable market share. Also, based on current valuations, the company is cheap.
For businesses in the consumer discretionary sector, particularly in the fashion industry, recognition is key. The list of brands listed above might ring a bell for some; perhaps some may even own Anta’s sportswear. To the investor, the familiarity or recognition of products and services from these companies in the mass market implies relatively inelastic demand compared to brands that some may never have heard of.
Alternatively, if you are big enough, such as Anta, you can practically penetrate various parts of the value chain and slowly build a name for yourself, which in investing terms refers to a competitive advantage or moat.
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Recently, competitor Li-Ning, founded by China’s most famous gymnast, replaced Anta as the official sports apparel partner for the Chinese Olympic Committee. At first glance, this may sound like adverse news, which is likely reflected in the company’s share price, but it is unlikely to have a significant impact on the company’s financials. The disparity between the price drop and actual loss in value to the company here would imply that investors can buy the company at a cheaper price. Anta has various other options to recover the compromised branding, such as through partnerships with renowned sports athletes to promote its labels. For the mass-market segment, ANTA’s premium sportswear, such as Arc’ter yx and Salomon, are good competitors to brands such as Nike and Adidas and have gained much traction not just domestically but also globally over the years.
Backtracking on Anta’s presence along the value chain, Anta has sportswear and gear to address the latest market trends. An example would be to address consumer segmentation, such as high-income groups and lower-tier markets, both of which the company has a presence in. Another industry trend is the high growth of vertical categories along the supply chain, such as the outdoor segment, in which Anta markets products through its Kolon Sport outdoor series brand.
Anta is also keeping pace with the technology trends in the market, specifically for its e-commerce and digitalisation segment. The company is applying artificial intelligence in its operations, such as to produce product samples and reduce sunk costs through making physical samples. Anta is also utilising AI digital humans to engage with its customers and audience in real time, which enhances the consumer experience and potentially boosts sales and conversion rates.
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In Anta’s 1HFY2024 results, revenue grew 13.8% y-o-y. Specifically, the Anta brand grew by 13.5%, Fila grew by 6.8%, and all other brands grew strongly by 41.8%. Similarly, overall operating profits grew by 13.6% over the same period, with Anta growing by 17.9%, Fila by 2.6% and other brands by 39.6%. Operating margins for the other brands are also the highest, at 29.9%, followed by Fila at 28.6% and finally Anta at 21.8%.
Well, they say if you can’t beat them, just acquire them — or, in this case — acquire brands that can compete within their value chain segment, such as the brands from Amer Sports. Anta’s financial health is excellent, with over one times in cash and current ratio implying strong liquidity and even better solvency through a net cash position and an interest cover of almost 30 times. Relative to global peers, Anta trades at a slight 4% and 2% discount for its forward P/E and P/B ratios, respectively, and a 6% premium for its forward EV/Ebitda.
As a component stock of the Hang Seng Index, Anta is well-followed by analysts. Sentiment-wise, there are 50 “buy” calls, three “hold” calls and no “sell” calls for Anta from analysts with an average target price of 35% above its current trading price of HK$80.8 ($14.06). Based on our in-house valuations (see Charts 1a and 1b), we think the fair value for the company is HK$98.2.
Disclaimer: This article is for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This article does not take into account an investor’s particular financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor's own discretion and/or after consulting licensed investment professionals, at their own risk.
