Maintain BUY but fine-tuned TP to HK$ 90.26, based on 30x FY20E P/E (unchanged). We remained confident on Anta’s execution even though 1Q20E could be a tougher quarter. Despite the potential share dilution, we see the CB as a positive as it can lower recurring interest costs. We think valuation is attractive at 25.1x P/E & 1.2x 3 years PEG, vs intl. peers’ avg. of 26.7x & 1.6x.
- 4Q retail sales slight beat. Anta/ FILA/ other brands’ retail sales growth were high-teens/ 50-55%/ 25-30% in 4Q19 (vs mid-teens/ 50-55%/ 30-35% in 3Q19), slightly above CMBI est. of high-teens/ 40-50%/ 30-35% for Anta/ FILA/ others.
- Remarkable growth given unfavorable weather. Due to hotter temperature in 4Q19 (+ 1-2 degrees vs 4Q18), a surge in industry-wise inventory was observed in our channel check. Hence, it was fairly impressive to see growth of Anta/ FILA brand to accelerate/ sustain, management attributed that to: 1) earlier rollout of winter products and 2) slightly greater promotion (retail discounts for Anta/ FILA down 2/1ppt in 4Q19 vs 4Q18). Even though we believe FILA growth slowed down from 100% YoY in FY18 to 70% YoY in FY19E, growth of sales per store only slowed from 40% to 30% level (adjusted for buyback of FILA’s distributor stores), which is remarkable given a slower store count growth of 18% YoY in FY19E (vs 52% YoY in FY18). This strong momentum continues to provide us confidence on its FY20E revenue growth.
- Considerable finance costs savings from issuing CB. Sales of a 5-year zero coupon convertible bond with 40% conversion premium was done on 14 Jan 2020, at the price of 102.5% of principal amount, with a total size of EUR 1bn. We think it is wise for the Company to reduce its near-term finance costs (RMB 150mn based on 2.3% interest rate for its EUR 850mn debt borrowed last year, for Amer’s acquisition), at the potential expense of share dilution (~82mn new shares or ~3.1% of total issuances). Also, the reception of CB was favorable, indicated by its high-end pricing. We think interest among investors could be great thanks to attractive valuation of the CB, especially its call option could worth ~25% of the face value, based on Anta’s credit condition and volatility data from Bloomberg.
- Maintain BUY and fine-tuned TP to HK$ 90.26. We maintain BUY and fine-tuned TP to HK$ 90.26, based on 30x FY20E P/E (unchanged), implying a 1.5x 3 years PEG. The stock is attractive, trading at 25.1x P/E or 1.2x PEG. We adjusted our FY19E/ 20E/ 21E diluted EPS estimates by -8.8%/ -1.3%/ -0.1%, to factor in 1) increases in fully diluted number of shares, and 2) repayment of EUR 500mn debt right after CB issuance.
