The 2023 revenue performance was in line with expectations, and the profit side slightly exceeded expectations;? We expect the 2024 revenue/net profit to mother to increase by 12.8%/22.8% year-on-year to 703.2/12.57 billion yuan, respectively;

Maintain the buy rating and raise the target price by 9% to HK$105.55, corresponding 20 times the 2025 P/E.

The profit side performance in '23 slightly exceeded expectations: 1) Anta Sports released its 23-year results. Revenue/net profit to mother increased 16.2%/34.9% year-on-year to 623.6/10.24 billion yuan, respectively. After conversion, 2H23 revenue/net profit to mother increased 18.1%/37.1% year-on-year to 327.1/5.49 billion yuan, respectively. The revenue side met expectations, and the profit side slightly exceeded expectations. 2) Gross margin increased 2.4 pcts to 62.6% year on year, employee cost/advertising/R&D expenses ratio was -0.2/-2.1/+0.2 pct, respectively, and sales/management expenses decreased by 1.8/0.8 pct to 34.8%/5.9% year on year, respectively. Benefiting from the increase in cash and equivalent and US dollar interest rates, the financial expense ratio fell 1.4 pcts to -1.6%, but was partially offset by the increase in shared losses to 720 million yuan. Ultimately, the net profit margin increased 2.3 pcts to 16.4% year on year.

Revenue and net profit are expected to increase by 12.8%/22.8% year-on-year respectively in 2024:1) Anta continues to improve the matrix of the five major running shoes, including racing and cross country. Basketball shoes recently released the Owen Generation, and will also iterate on six major IPs including KT in the future. The channel side introduced differentiated brand resources and product IP for five different store types, including P300/P500; online, it also sought growth momentum based on the differentiated supply of traditional/content e-commerce. We expect Anta to open a net of 169 stores in 24. The optimization of the product and packaging model is expected to drive an increase in the number of units in store efficiency. Combined with the increase of 1.08 billion yuan brought about by DTC transformation, offline revenue is expected to increase 10.5% year-on-year. With online revenue growth expected to increase 11%, we expect the Anta brand's revenue to increase 10.7% year-on-year to 33.58 billion yuan in 2012. 2) FILA's product transformation has been very effective. Footwear and functional products accounted for ~ 40%/36% of revenue in '23, respectively. The functional attributes of footwear will continue to be enhanced in the future. The channel side will also launch DNA scene stores and footwear concept stores to expand the high-tier market with the help of five major store types. We expect the FILA brand to net open 128 stores in 24 and increase the number of units in average store performance, resulting in an 11.8% year-on-year increase in offline revenue. Combined with expectations of a 13% increase in online revenue, FILA's revenue is expected to increase 12.2% year-on-year to 28.17 billion yuan in '24. 3) Assuming that the revenue of Descente and Kolon brands increased 24.0% year-on-year in 2014, we expect Anta Sports' revenue to increase 12.8% year-on-year to 70.32 billion yuan in 2024. AmerSports is expected to have a one-time revenue of ~1.6 billion yuan from the listing; considering its 24-year EPS guideline of $0.3-0.4, assuming the USD/RMB exchange rate = 7.1 million yuan, the 24-year share is expected to account for 50-660 million yuan in joint revenue. The gross margin remains flat at 62.6%, and the sales and management expenses ratio is expected to increase by 1.3/0.4 pct to 36.1%/6.3% year on year in 24, respectively. As a result, the net profit margin for mother will increase by 1.5 pcts to 17.9% year on year (corresponding increase of 22.8% to 12.57 billion yuan in net profit).

Profit forecast and valuation: Maintaining the purchase rating, increasing the target price by 9% to HK$105.55, corresponding 20 times the 2025 P/E: We slightly lowered 2024/25 revenue by 1.3%/0.4% and introduced the 2026 forecast. The estimated revenue is expected to increase 12.8%/11.4%/10.6% year-on-year to 703.2/783.5/86.67 billion yuan, respectively; increase 2024/25 net profit by 10.9%/7.3%, and introduce the 2026 forecast. It increased by 22.8%/8.2%/10.9% to 125.7/ 136.1/15.09 billion yuan. We switched the valuation base year to 2025 and gave Anta Sports 20 times P/E, corresponding to the new target price of HK$105.55, an increase of 9% from the old target price. There is still room for a 29% increase from the current stock price.

Risk warning: macroeconomic downturn; performance falls short of expectations; industry competition intensifies.