Revenue increased 16% year over year in '23, and net profit to mother (include/excluding AMER's impact) increased 35%/45% year over year. Anta Sports announced the 2023 results. The company achieved operating income of 62.356 billion yuan, a year-on-year increase of 16.2%, and net profit to mother (including the impact of the joint venture company AMER) of 10.236 billion yuan, an increase of 34.9% year-on-year, which was better than expected. Net profit to mother excluding the impact of the joint venture was 10.954 billion yuan, an increase of 44.9% year on year. EPS is $3.69, and it is proposed to distribute a final cash dividend of HK$1.15 per share, compounded by an interim cash dividend of HK$0.82, with an annual dividend payout rate of 50.7%. Looking at the first half of the year, 23H1/H2 revenue increased 14.2%/18.2%, respectively, net profit to mother (including the influence of the joint venture company AMER) increased 32.3%/37.1% year over year, respectively. Net profit attributable to mother without AMER's influence increased 39.8%/49.9% year over year, respectively.

In terms of profit margin indicators, gross margin increased 2.4 PCT to 62.6% year on year; operating profit margin increased 3.7 PCT year on year to 24.6% year on year; net interest rate to mother (include/excluding the impact of AMER) increased 2.3, 3.5 PCT to 16.4% and 17.6% year over year (back to 19 levels).

The joint venture company AMER23 achieved operating income of 31,248 billion yuan, a year-on-year increase of 30.1%. EBITDA achieved profit of 3,745 billion yuan, a year-on-year increase of 45.4%, and a net profit loss of 1,367 billion yuan. The impact on the consolidated statements was reflected in losses attributable to the joint venture company of 718 million yuan. The losses were mainly due to Peak Performance's confirmation of goodwill and trademark impairment totaling about 1,131 million yuan.

In terms of retail turnover, the main brands Anta, FILA, and other brands increased by 15 to 20% and 60 to 65% year over year, respectively; on a quarterly basis, the main brand Anta from 23Q1 to Q4 increased the number of units, high units by 15 to 20%, 10 to 15%, and 25 to 30%, respectively. Other brands increased 75 to 80%, 70 to 75%, 45 to 50%, and 55 to 60%, respectively.

Revenue from Anta/FILA/other brands increased 9%/17%/58% year on year, and online/offline revenue increased 11%/19% year over year. By category, footwear, clothing, and accessories each accounted for 40.6%, 56.2%, and 3.2% of revenue in '23. Revenue increased by 12.7%, 18.8%, and 18.1%, respectively.

By brand: The revenue of the Anta brand, FILA, and other brands each accounted for 48.6%, 40.3%, and 11.1%, respectively. Revenue increased by 9.3%, 16.6%, and 57.7% year-on-year respectively. Looking at the first half of the year, 23H1/H2 Anta brand revenue increased 6.1%/12.3% year over year; FILA brand increased 13.5%/19.8% year on year; other brands increased 77.6%/43.6% year on year, respectively. Among them, DTC, e-commerce, traditional wholesale, and others accounted for 56.1%, 32.8%, and 11.1% of the revenue of the Anta brand in 23 years, respectively. Revenue was +24.2%, +2.6%, and -22.7%, respectively.

Looking online and offline: E-commerce business revenue increased 11.1% year on year, accounting for 32.8% of revenue, and total offline business revenue increased 18.9% year on year; in addition, combined with Anta's main brand's e-commerce revenue growth of 2.6% in '23, it is estimated that the FILA brand's e-commerce revenue in '23 showed a beautiful double-digit increase, which is the main contributor to the company's e-commerce growth. In terms of offline channels, as of the end of '23, the number of Anta brand (including children), FILA, Descente, and Colon stores was 9831 (+2.4% compared to the beginning of '23), 187 (-2.1%), and 164 (+1.9%).

Gross margin increased, expense ratio decreased, and healthy inventory and net operating cash flow increased gross profit margin: The company's gross margin increased 2.4 PCT to 62.6% year on year in '23, with the Anta brand, FILA, and other brands each increasing 54.9% (+1.3 PCT year over year, mainly DTC channels with high gross margin increased), 69.0% (+2.6PCT, mainly due to an improvement in retail discounts), and 72.9% (+1.1 PCT). Looking at the first half of the year, 23H1/H2 gross margin increased by 1.2 PCT and 3.4 PCT, respectively.

Expense ratio: The expense ratio for the 23-year company period was 39.1%, down 4.0PCT year on year. Among them, sales, management, and finance expenses rates were 34.8% (-1.8PCT), 5.9% (-0.8PCT), and -1.6% (-1.4PCT), respectively.

The year-on-year decline in financial expense ratios was mainly due to an increase in interest income. In terms of cost types, advertising and promotion expenses accounted for 8.2% of revenue in '23 (-2.1PCT, mainly due to large expenses related to the Winter Olympics and falling in '23), employee cost revenue accounted for 14.9% (-0.2PCT), and R&D revenue accounted for 2.6% (+0.2PCT).

Operating profit margin: The company's operating profit margin increased 3.7 PCT to 24.6% year on year, mainly due to 1) store efficiency and floor efficiency increased operating leverage, and each brand's store efficiency increased by double digits year over year 23, which in turn led to a decrease in the share of expenses such as rental and sales ratio and employee costs; 2) product operation efficiency improved, retail discounts for each of its brands improved, and product impairment also decreased. By brand, the operating profit margins of Anta, FILA, and other brands were 22.2% (+0.8PCT year over year), 27.6% (+7.6PCT), and 27.1% (+6.5PCT), respectively.

Other financial indicators: 1) Inventory decreased 15.1% year on year to 7.210 billion yuan at the end of the year 23; the number of inventory turnover days was 123 days, a decrease of 15 days year on year. Inventory impairment returned 20 million yuan in '23, while inventory impairment losses of 414 million yuan were calculated in '22, which also showed that the company's inventory control was smooth and the product structure was relatively healthy.

2) Accounts receivable increased 25.3% year-on-year to $3,732 billion at the end of the year; the number of accounts receivable turnover days was 20 days, a decrease of 1 day year-on-year.

3) Net cash flow from operating activities increased 61.6% year-on-year in '23 to 19.634 billion yuan.

The 23-year multi-brand matrix was perfect and operational capabilities were outstanding. All brands continued to strengthen their segmentation mentality. In 23, the company continued to adhere to the “single focus, multi-brand, and globalization” strategy. The performance was better than expected. The operating quality improved markedly in the context of steady revenue growth. All brands achieved growth in endogenous store efficiency and inventory declined. At the end of the year, the inventory ratio of major brands all returned to less than 5 months. The company continues to deepen its three core competencies, including multi-brand collaborative management capabilities, multi-brand retail operation capabilities, global operation and resource allocation capabilities, and multi-brand matrices and operational capabilities to maintain leadership in the industry.

Specifically, the Anta brand further clarifies its public positioning, and at the same time empowers the public and promotes brand improvement through professionalism.

In '23, Anta ranked first in the domestic running market, increasing investment in top resources in the basketball field. Anta officially signed a contract with Owen during the year, and launched Owen generation products globally in March '24. At the same time, Anta launched the Storm Armor Jacket series and the Ice Armor Down Jacket series using Anta film, which were well received by consumers. On the channel side, Anta focuses on creating a differentiated channel matrix. In '23, the brand opened the first Olympic Hall store and the first Anta Shoe concept store. The Anta Champion store also performed well, and the core store was twice as effective as a regular store. Furthermore, Anta promoted the Southeast Asian market layout and further globalization in '23.

The FILA brand continues to cultivate the strategy of top brands, top products, and top channels. It innovates and upgrades in the field of high-end fashion, and continues to be deeply involved in golf, tennis, and elite running. FILA footwear sales exceeded 10 billion for the first time in '23, accounting for nearly 40%, and the share of professional sports products increased by 4PCT to 36%. On the channel side, FILA continues to adjust existing stores, upgrade the store image, and expand the high-end business district. The efficiency of large stores is close to 1 million yuan, the number of 10-million-level stores has further increased, and the construction of live streaming and social platforms has been actively promoted online, showing remarkable growth.

The Descente and Kolon brands are positioned to segment the outdoor sports sector. In '23, Descente's revenue grew by more than 50% year on year, the volume of turnover exceeded 5 billion yuan, and Kolon's revenue increased by about 80% year on year. Descente is a high-end outdoor sports brand, strengthening high-quality products, and expanding the brand's influence by signing contracts with the Chinese national ski team and sponsoring golf events. The offline store efficiency is close to 2 million yuan; Kolon has a rich product structure, increasing the proportion of spring and summer products from about 30% to more than 40% in '23, and will increase the number of stores in the southern region in the future.

AMER was successfully listed on the NYSE in February '24 and will continue to empower the company's global presence. It completed five billion euro plans at the end of 23. Among them, Archaeopteryx will continue to focus on the two core markets of North America and China for 24 years; Salomon will focus on footwear products to consolidate its leading position in the outdoor cross-country footwear category; Will Sheng has a ball racket as its core business, and tennis rackets have continued to launch innovative products, and the basketball coverage rate ranks first in the world.

Furthermore, as of the end of 2023, the company's net cash reached 48.517 billion yuan. It has sufficient cash reserves, strong resilience to risks, and sufficient financial support for the future development of its brands.

Raising the profit forecast, I am optimistic that the company's multi-brand strategy will continue to advance, and that the company will continue to advance according to the three-year development plan. The target turnover growth rate for the 2024 Anta and FILA brands is consistent with the plan, all of which are 10-15%. Descente and Kolon's revenue growth targets are not less than 20% and 30%, respectively. In terms of stores, the company plans to target 7100 to 7200 and 2,800 for adults and children of the Anta brand in 24, respectively; FILA targets 2,100 to 2,200; Descente targets 220 to 230; and Kolon targets 180 to 190.

We continue to be optimistic that as a domestic sports leader, the company's multiple brands will continue to strengthen their competitiveness in market segments. Multi-brand products, channels and other resources complement each other, unleash growth potential, and steadily increase market share. Also, the Paris Olympics will be held in '24, further amplifying the volume of the main brand Anta.

Considering that the company's performance in '23 was better than expected, and that Amer's listing in early '24 will also contribute to increasing the company's profits, we raised the company's net profit for '24 and '25 (up 12% and 2% from the previous forecast, respectively) and added 26 years' net profit to 4.59, 4.89, and 5.57 yuan respectively. The corresponding EPS for 24-26 was 4.59, 4.89, and 5.57 yuan, respectively. PE in '24 and '25 was 17 times and 15 times, respectively, maintaining the “buy” rating.

Risk warning: Domestic and foreign demand continues to weaken; inventory backlog; industry competition intensifies; e-commerce channel growth slows; improper cost investment, small brand cultivation, or AMER profit improvement falls short of expectations.