Robert Way
I award a Hold rating to ANTA Sports Products Limited (OTCPK:ANPDY) (OTCPK:ANPDF) [2020:HK]. Previously, I wrote about ANTA Sports’ most recent financial and operating metrics in my April 2, 2024 update.
My latest article focuses on the takeaways from Nike’s (NKE) results and guidance, and China’s 618 shopping festival. I continue to rate ANTA Sports as a Hold. On one hand, the overall sportswear market demand in China seems weak, considering Nike’s disappointing performance and outlook. On the other hand, price discounting has become less intense in the Chinese sportswear market and there are pockets of growth like the outdoors sub-segment.
Investors should note that ANTA Sports’ shares are traded on the Hong Kong exchange and the OTC market. The company’s Over-The-Counter shares and shares listed on the Stock Exchange of Hong Kong boasted three-month mean daily trading values of $0.4 million and $70 million (source: S&P Capital IQ), respectively. US stockbrokers like Interactive Brokers and Hong Kong brokers such as Boom Securities provide trading services for Hong Kong-listed shares.
Nike is a key peer for ANTA Sports. According to data taken from Euromonitor, NKE boasts a 23% market share of the Mainland Chinese sportswear industry, and China is Nike’s second biggest geographical market in terms of sales contribution.
NKE announced the company’s latest Q4 FY 2024 (YE May 31, 2024) financial results on Thursday, June 27, 2024 after the market closed. Nike’s total revenue declined by -1.7% YoY to $12.61 billion, and this represented a -1.9% top-line miss. The company guided that “sales will decline 10% in its current quarter (Q1 FY 2025)” and “will be down at a mid-single-digit clip for the full year” or FY 2025 as per a June 28, 2024 Seeking Alpha News article.
More significantly, Nike’s performance in China wasn’t as good as what headline numbers suggest. The company’s constant-currency revenue growth for the Greater China market accelerated slightly from +6% YoY for Q3 FY 2024 to +7% YoY in Q4 FY 2024. At its Q4 FY 2024 analyst call, NKE stressed that “we fell short of our plan, with traffic softness persisting across all marketplace channels” in the Chinese market, if one adjusts for the “timing benefit” related to China e-commerce platform “Tmall’s earlier start to the 618 shopping holiday.”
Nike also shared at the company’s most recent quarterly analyst briefing that the Greater China market’s “brick-and-mortar traffic declined as much as double digits” YoY in Q4 FY 2024, and noted “a softer outlook” for this particular geographical market.
There are unfavorable read-throughs from the review of NKE’s performance, prospects, and management commentary. It is reasonable to assume that the revenue of Chinese sportswear companies in general, including ANTA Sports, might be under pressure in the near term.
A recent major e-commerce event in China does have some favorable takeaways for ANPDY, notwithstanding the poor results and outlook for Nike.
Seeking Alpha News referred to the “618 shopping festival” which occurred in the May 20-June 20 period as “China’s second-largest annual sales event, second only to the Singles’ Day event in November” in a June 2024 article.
Goldman Sachs issued a report (not publicly available) detailing its analysis of the data relating to China’s 618 shopping festival last month. In GS’ June 24, 2024 report titled “China Consumer Connections: 618 Shopping Festival”, the investment bank shared metrics suggesting that the outdoors sub-segment of the Chinese sportswear market is growing well, and that there has been a greater focus on profitability for China’s sportswear companies.
Specifically, the average price discount for sportswear products narrowed from 35% at 2023’s Singles’ Day event and 30% at 2023’s 618 e-commerce event to 28% at 2024’s 618 shopping festival. These numbers were sourced from Goldman Sachs’ June 24, 2024 research report. This implies that the actual profit margins of listed Chinese sportswear businesses (e.g. ANTA Sports) for Q2 2024 could possibly surprise on the upside.
Separately, GS’ late-June report on the 618 shopping festival highlighted that the “outdoors (sub-segment) continued to see a solid trend” and indicated that ANTA Sports’ brand sales ranking on the Tmall e-commerce platform during this year’s 618 festival rose to outside of the top 20 to 17th.
It is worth noting that ANTA Sports had mentioned at its FY 2023 earnings call (transcript taken from S&P Capital IQ) in late-March 2024 that “outdoors (sub-segment) growth is much faster than the overall sport industry” in China. ANPDY also indicated at the company’s most recent fiscal year results briefing that its “outdoors sports product” like the “ANTA Storm Mecha Jacket” are “well received by consumers.”
In summary, the price competition in the Mainland Chinese sportswear market appeared to have eased to a considerable extent, and there are growing sub-segments like outdoors.
It is fair to say that the prospects for China’s sportswear sector and ANTA Sports are mixed, after analyzing Nike’s numbers and the key metrics pertaining to the 618 shopping event. This justifies a Hold rating for ANPDY.
With regards to valuations, both the P/E valuation metric and the expected earnings growth rate for ANTA Sports are at the mid-teens level, so I view the stock as fairly valued. Specifically, ANTA Sports’ consensus next twelve months’ normalized P/E ratio and the consensus FY 2024-2026 normalized net income CAGR projection are 15 times and 14%, respectively as per S&P Capital IQ data.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
