Maintain BUY and raised TP to HK$ 95.55, based on 30x FY21E P/E (rolled over from 33x FY20E). We expect strong/ in-line performance from Anta/ FILA in 2Q20E and healthy recovery in 2H20E. Hence, we believe its current valuation of 25x FY21E P/E is still attractive, vs Li Ning/ Nike/ Adidas’s 28x/ 30x/ 27x.
- We foresee 1H20E sales to grow by 2% YoY and NP to fall by 28% YoY. The flattish sales assumption in 1H20E is supported by strong recovery of Anta and FILA. Both had resumed positive offline growth in May and Apr 2020, on top of its robust e-commerce (e.g. 78% YoY group sales growth during 618 festival). We attributed 28% NP decline in 1H20E to: 1) weak GP margin due to greater rebates by Anta and higher retail discounts by FILA, 2) FILA’s significant operating deleverage and 3) greater drags from Amer.
- Both Anta and FILA had impressive online growth in 2Q20E. According to our channel check, we believe Anta’s e-commerce growth accelerated to ~40% YoY in 2Q20E (vs MSD in 1Q20), while that for FILA remained fast at ~60% YoY in 2Q20E (vs ~160% in 1Q20). Therefore, our overall retail sales growth estimates for Anta/ FILA are 6%/ 16% in 2Q20E, which is higher/ inline vs management guidance of MSD drop/ mid teen growth. Looking ahead, we are positive on FILA’s performance in 3Q20E, as it will have: 1) a new spokesperson (August Cho/ 蔡徐坤), 2) a Tmall Super Brand Day on 10 Jul 2020 and 3) more crossovers (e.g. FILA x Mihara Yasuhiro/ 三原康裕).
- Channel inventory manageable and we expect a less promotional 3Q20E. Generally speaking, 2Q20E was still very promotional, but we believe Anta/ FILA have reduced their inventory level to 5-6/ 6-7 months in 2Q20E (vs 5-6/ 8 months in 1Q20). Going forward, we believe inventory and discounting pressure for the industry will be less in 3Q20E, because Nike and Adidas had cleared a lot of inventory in 2Q20E, where cash flow was their priority.
- Pressure exists for Amer, but still manageable. 2Q20E was tough for Amer because of COVID-19 in overseas. However, 3Q20E shall be better given business reopening, more online sales and promotions. Nonetheless, we now expect ~20% sales drop and recurring losses in FY20E.
- Maintain BUY and lift TP to HK$ 95.55. We cut our FY20E/ 21E/ 22E diluted EPS estimates by 7.0%/ 7.0%/ 3.3%, to factor in 1) slightly slower FILA sales, 2) lower GP margin led by higher retail discounts and 3) higher losses from Amer. We maintain BUY and lifted TP to HK$ 95.55, based on 30x FY21E P/E (rolled over from 33x FY20E). The valuation is still undemanding at 25x FY21E P/E, given a 22% NP CAGR during FY19-22E.
