Maintain BUY and raised our TP to HK$ 150.98, based on 36x FY22E P/E (rolled over from 32x FY21E P/E). We advise investors to look beyond FY20E and focus more on FY21E-22E growth initiatives (healthy inventory level and less discounts, Anta brand restructuring, DTC reforms). We believe the current valuation of 31x FY22E P/E is still attractive, vs Li Ning/ Nike/ Adidas/ Lulu’s 36x/ 32x/ 27x/ 44x.
- A slight miss for Anta in 4Q20 as top priority is healthy inventory. Anta retail sales YoY growth was only LSD in 4Q20E, below guidance of MSD and CMBI est. of 10% YoY, due to: 1) higher than expected retail discounts (2-3ppt higher vs 4Q19), esp. when e-commerce (discount is usually higher vs offline) sales contribution is also higher than expected and 2) downward revision in 4Q20 trade fair sales orders after COVID-19 outbreak. However, sales to inventory ratio for Anta returned to ~5 months in Dec 2020, vs ~6 months in 3Q20, and sell-through rate in 4Q20 was 9ppt better than 4Q19. A new standard of sales to inventory (Anta offline + online + warehouses) will be used for disclosure since FY21E, which is ~1 additional month higher.
- FILA and other brands retail sales growth was inline in 4Q20, even with more promotions online. FILA retail sales grew by 25% to 30% YoY in 4Q20, in line with guidance and CMBI est. of 30% YoY, even though level of discount in double 11 was higher than expected. Descente/ Kolon retail sales grew by 80%+ / 30% to 40% YoY in 4Q20 and are likely to be profit making in FY20E.
- A prudent FY21E guidance, but we are optimistic on Anta brand restructuring. Management is targeting a 10%+ Anta/ 20%+ FILA retail sales YoY growth in FY21E, which is rather prudent, given easy base in 1H21E and implying only 0-5% YoY growth in 2H21E. However, we are more optimistic because Anta is set to begin its restructuring to upgrade the trendiness of its products and crossovers, fans engagement, marketing, sports event promotions and store formats, etc.. Management also expects inventory level to normalize after 2021 CNY and retail discounts to improve YoY in FY21E.
- DTC businesses margin to gradually improve in FY21E-22E. We believe DTC reform is the key to: 1) unlock Anta’s O2O potential (as the inventory sharing between brands and distributors was limited) and improve its retail store efficiency (esp. in area such as Shanghai and Wuhan, etc.) Management expects NP margin for the related DTC unit to gradually improve to LSD/ MSD/ HSD in FY21E/ 22E/ mid-term horizon.
- Maintain BUY and raised our TP to HK$ 150.98. We maintain BUY and raised TP to HK$ 150.98, based on 36x FY22E P/E (rolled over from 32x FY21E P/E). We revised up FY20E/ 21E/ 22E NP forecasts by 1%/ 2%/ 5%, to factor in: 1) faster online growth and 2) DTC reform. Current valuation is still attractive at 31x FY22E P/E, given a 25% NP CAGR during FY19-22E.
