Key points of investment:

The company released retail operation data for the third quarter of 2024, and the performance of each brand was divided. The retail sales of the Anta brand increased year-on-year in the third quarter, and the performance was in line with expectations; the FILA brand's low number of units fell slightly below expectations; other brands grew by 45-50%, exceeding expectations, and continued to grow strongly under the influence of the outdoor boom and strong brand power.

Looking at brand segments, 1) The main brands are growing steadily for adults and children, and FILA's big products are performing better. According to the company's 24Q3 public performance exchange, the number of units in the overall growth of the 24Q3 brand, of which the number of units for large goods and children is growing. FILA24Q3 decreased the number of units year over year. Among them, the growth trend of large goods was relatively good, and the performance of trendy brands and children was weak. 2) The new brand maintained strong performance. Kolon Sport grew 65-70%, and DESCENTE grew more than 30%, continuing to exceed expectations.

By channel, online growth is superior to offline, and the offline store business format continues to innovate. According to the company's 24Q3 public performance exchange, the 24Q3 Anta brand e-commerce continued to grow by more than 20%, and the FILA brand's online growth rate is still expected to be faster than offline. The Double Eleven e-commerce promotion is approaching, and preparations are being made within the company. The goal is to outperform peers on all platforms, taking into account scale growth and profit margins. Offline channels actively carry out differentiated store layouts, such as the Super Anta store, which has high cost performance as its core advantage, effectively captures the needs of price-sensitive customer groups in an environment where consumption is downgraded, and is in line with current consumer trends. Once launched, the target annual sales volume is 10 million. The target annual sales volume is 10 million. It is planned to open about 50 stores within the year to expand business growth.

Inventory remains healthy, and discount levels have steadily improved. According to the company's 24Q3 public performance exchange, Anta is currently less than 5 times and FILA is 5 times, all at normal levels, which also drives the discount rate to maintain a good level. In 24Q3, Anta's offline discounts remained the same year over year, and online discounts improved year over year; FILA online and offline discounts were generally stable; and the discount rate for new brands improved by a single digit percentage. It shows that brand retail growth is not driven by discounts, and sales growth is of high quality.

Looking ahead, sales picked up on National Day, and cost control provided greater visibility for achieving profits throughout the year. According to the company's 24Q3 public performance exchange, the performance of Anta and FILA during the National Day holiday both exceeded expectations. Among them, various indicators such as Anta passenger flow and associated rate increased, and FILA mainly benefited from improvements in passenger flow. Given that the sales achievement rate for the third quarter was slightly lower than the internal plan, about 90%, the achievement of sales targets for the whole year depended on higher growth in the fourth quarter. The company believes that if sales of various brands meet expectations in the fourth quarter, and rely on the control of marketing, rent and other expenses, there is still a high degree of visibility to achieve profit targets for the whole year.

The company's multi-brand matrix resources are scarce, and the main brands are growing steadily. FILA focuses on high-end fashion, and new outdoor brands continue to grow rapidly and maintain a “buy” rating. Considering that the company's achievement rate in the third quarter was slightly lower than expected, and there is still uncertainty in the current retail environment, we slightly lowered 24-26 net profit to 13.41/13.57/15.07 billion yuan (originally 13.86/13.92/15.43 billion yuan), corresponding PE was 19/19/17 times. The 24-year profit included a one-time revenue of 1.6 billion yuan from Amer Sports's listing, if excluded. Fluctuations in the short-term retail environment have not changed the medium- to long-term positive trend. We are still optimistic about the future growth potential of the company's scarce and high-quality multi-brand matrix portfolio, and continue to maintain a “buy” rating.

Risk warning: terminal sales recovery fell short of expectations; market competition increased risk; new product promotion fell short of expectations