Main points of investment
Anta main brand pipeline growth is in line with expectations, discounts and inventory sales are roughly the same as the previous month:
The retail environment is relatively normal from July to August, and the spread of the epidemic has affected offline retail since September. 22Q3 Anta main brand pipeline is growing in the number of units, in which large goods / children / e-commerce recorded the growth rate of medium / high / high units respectively. In terms of discount and inventory, the comprehensive discount rate of Anta main brand is the same as the previous month, and Anta children has 2-3pp improvement. The inventory-to-sales ratio of Q3 is close to that of Q2 (slightly more than 5 times), and the operation condition is relatively healthy. Looking forward to the future: in the upcoming Singles Day holiday, the company will take running water as the priority goal, use running water growth to drive inventory removal, and reasonably control fees. If the epidemic is under control, there is still much room for brand upward and product upgrading led by Olympic technology and nitrogen platform, as well as DTC retail efficiency.
Q3 FILA e-commerce-driven growth, focusing on inventory control dynamics:
22Q3 FILA recorded low double-digit pipeline growth, in line with market expectations, in which large goods / children / tide cards recorded single / double-digit / 20% positive growth respectively. FILA e-commerce performed well, and 22Q3 online increased by 65%, due to increased cooperation with e-commerce platforms such as JD.com / Tmall / Xiaohongshu / Douyin, and Q3 stores affected by the epidemic also increased live broadcasts to make up for offline performance. In terms of inventory and discounts, the 22Q3 retail inventory ratio is 7-8 times higher than the normal level. The discount remained stable, with a slight increase in month-on-month and year-on-year, and the Q3 comprehensive retail discount maintained a 74-25% discount (the Q2 composite discount was 76).
Looking to the future: in the short term, running water and healthy inventory will become the primary consideration of the brand, healthy inventory ratio and inventory structure are the basic conditions for sustainable growth in the future. FILA is still in the period of product adjustment.
The Kelon brand has benefited from the rise of outdoor camping demand, and Disante is growing rapidly:
Other 22Q3 brands recorded year-on-year growth of 40-45 per cent, of which Disante + 35 per cent Kolonwoods 55 per cent. Kolon's online and offline growth rates are similar and perform best in the group's brand matrix because of the rise of outdoor camping and the high-quality Kelon brand has no strong competitors in its field and is significantly attractive to the target audience. The store efficiency of Kolon reaches 500000 per month from September to October, and profitability is expected to increase with the rapid growth of scale.
Maintain the buy rating with a target price of HK $101.0:
Viewpoint: short-term offline retail boom depends on the dynamics of the epidemic, and remain cautiously optimistic in the short and medium term. We believe that we need to pay close attention to the dynamics of Q4 flow and inventory control, and good inventory control is the key to improve operating profit margins next year. Taking into account the uncertainties in the retail environment next year, the FY23 profit forecast has been lowered accordingly.
The estimated revenue from 22e to 24e is 569 / 657 / 78 billion yuan, + 15% / + 16% / + 19% compared with the same period last year, and the net profit from home is 81.7 / 96.0 / 11.92 billion yuan, respectively, and + 6% / + 17% / 24% compared with the same period last year. The target price is 101.0 Hong Kong dollars, maintaining the buy rating, corresponding to 25 times the target price of 23e PE.