The target price was lowered to HK$106.00 but maintained the “buy” investment rating. Considering the lower sales growth rate and gross margin assumptions for 2022, we revised the company's 2022-2024 shareholder net profit forecast by 5.4%/5.6%/5.4% respectively. Our new target prices correspond to 33x, 25x, and 20x 2022-2024 price-earnings ratios, respectively. We believe that the company has excellent operations and resilience to risks under the strategic direction of “single focus, multiple brands, and globalization” to meet current challenges.

Retail performance in the third quarter of 2022 was in line with expectations. In the third quarter of 2022, the retail turnover categories of Anta's main brand, FILA, and other brands recorded medium units, a low of 10-20%, and a year-over-year increase of 40-45%. The pace of the company's retail recovery slowed in the third quarter of 2022, mainly affected by repeated regional outbreaks in September and related prevention and control measures. Currently, the inventory-to-sales ratio of Anta and FILA retail channels is slightly higher than 5.0 times and 7.0 times, respectively. Anta's main brand and FILA's comprehensive retail discount rates are around 26% and 25%-26% respectively.

We anticipate that the cold winter of the fourth quarter or the upcoming promotional season is expected to stimulate sportswear consumption, help the company absorb excess inventory, and push inventory levels back to normal by the end of 2022. Given Nike's better-than-expected inventory and discount levels in China, we don't expect deeper industry discounting in the fourth quarter of 2022.

Catalysts: 1) Retail flow during peak sales season exceeded expectations; 2) Inventory removal rate exceeded expectations; 3) Moderate channel discount levels.

Risks: 1) The growth rate of China's sports footwear and apparel market is slowing; 2) repeated outbreaks and mutation of the epidemic in some regions.