Net profit in 2023 exceeded expectations, and profit margins expanded strongly: 2023 sales/net profit increased 16.2%/34.9% year-on-year to 62.4 billion yuan/10.2 billion yuan; net profit exceeded consistent expectations/BOC International expectations. In the second half of 2023, the year-on-year increase in sales accelerated to 18% from 14% in the first half of the year, and gross margin increased 3.4 percentage points (up from 1.3 percentage points in the first half of the year). By brand classification, Anta/ FILA/ other brands increased 9%/17%/58% year over year, which basically complied with management guidelines, while operating margins expanded strongly. The payout ratio increased to 50.7% (2022:44.3%), and we expect it to remain around 50% in the future.
2024 guidance, high year-to-date sales base: Despite a high base in the first quarter of 2024, sales growth in the first quarter of Anta and FILA remained within their full-year sales guidelines (10-15% year over year). In 2024, Descente/Kolon's sales are expected to grow > 20% > 30% year over year. Anta's operating margin is expected to exceed 20% (2023:22.2%), and FILA/other brands will have operating margins of around 25% (2023:27.6%/27.1%), in line with previous guidelines.
Anta - Rebranding brings sales growth and overseas expansion: As store opening guidelines are only 1-2% year-on-year growth, the 10-15% increase in sales in 2024 will be mainly due to single-store sales growth. In 2023, Anta's core brands had single-store sales of <300,000 yuan/month, which is lower than other brands (such as FILA and Kolon are 1 million yuan/month, and Descente is 2 million yuan/month). Anta's newer store business, Anta Champion, has doubled single-store sales, and better product launches in 2024 (such as Kyrie Irving shoes to complement the KT series-led product line) and new store formats may help drive higher sales. The Paris Olympics will also provide sufficient publicity for Anta, the sponsor of the Chinese Olympic Committee. Anta is expanding overseas (in line with the trend of Chinese consumer companies) and establishing R&D centers around the world, but it will take time to localize product designs. For example, there are few color designs in the Middle East.
An outstanding year for FILA: FILA's operating margin increased 7.6 percentage points to 27.6% in 2023 (up 9.3 percentage points in the second half of the year), thanks to reduced discounts of 2 percentage points and successful live streaming marketing, which was particularly effective for FILA with smaller retail outlets (< 2,000 points of sale).
Reiterating purchases and increasing target prices in 2024: Anta is our overall consumer industry go-to stock in 2024. We raised our target price to HK$135 (previously HK$129), based on a 22-fold average price-earnings ratio for 2024-25 (previously 25 times the 2024 price-earnings ratio), and a compound annual growth rate of 22% for earnings per share, corresponding to 1.0 times PEG.