Li Ning Co. Ltd., Anta and other sportswear companies recently announced the 2020 report one after another, the performance is good, the recent stock price trend of the sector is also very strong. Li Ning Co. Ltd. 's share price continues to hit a new high today, with a market capitalization of more than HK $150 billion.

According to a recent research report released by Haitong, the Greater China region will still be the leading region in the global sportswear market in the next five years, and the sports fashion market is the largest, recommending targets such as ANTA Sports Products, Taobo and Xtep International.

I. domestic sports consumption has recovered significantly, and the overseas consumer sports industry has rebounded fastest.

From the perspective of the domestic market, both domestic and overseas brands have recovered to varying degrees: domestic brands have achieved positive growth in 20Q3. Among them, FILA of Anta and other brands with descente and kolon as the core have achieved rapid growth of 20% and 55% in 20Q4, respectively. International brands, Greater China and the Asia-Pacific region are showing a quarterly consumption improvement trend.

At present, the domestic sports market has fully recovered, reflected in: income growth, gross profit level, net profit growth and other indicators have been significantly improved.Haitong believes that the excellent profit performance of enterprises in the second half of 2020 comes from the strict control of retail discounts and expenses.

Compared with 20H2 and 20H1, the growth rate of revenue and profit of listed companies has improved.

For domestic brands, from the revenue side, the income growth rates of ANTA Sports Products and Li Ning Co. Ltd. both rebounded to 24% in the second half of the year (- 4.6% and-4.8% respectively in the first half), showing strong brand strength and channel management adaptability. In terms of net profit, ANTA Sports Products, Li Ning Co. Ltd. and Xtep International grew by 37%, 65% and 18% respectively in the second half of the year, all significantly better than in the first half of the year.

For international brand channels in China, Baosheng's international revenue growth rate returned to 0.4% in the second half of the year, while net profit narrowed to-22%.

From the perspective of overseas markets, sports are the fastest-recovering consumer sector.The monthly growth rate of retail sales in various consumer categories in the United States shows that the decline in retail sales in the sports category in April 2020 is second only to that in the furniture and household appliances category, but the rebound is the most significant. The growth rate has rebounded to 39% in June and 29% in July, and the second half of the year has been the fastest growing category of retail sales.

At present, the overseas sports market is recovering, which is reflected in the return of income growth and the resilience of net profit as income improves.

The outbreak time of the overseas epidemic is later than that of the domestic. Because the time of the fiscal year is different, so the reporting period of the epidemic is different.Overall, the revenue of overseas brands has dropped sharply in Q1 or Q2, and has improved quarterly since then.Among them, Nike and Lululemon entered the stage of sustained positive growth of income in one quarter in 20Q2 (Nike:9/1-11 Universe 30, Lululemon:5/4-8 Universe 2), while puma entered the stage of sustained positive growth in Q3 (7-9 Universe 30).

In terms of net profit, Nike took the lead in restoring positive growth of 11% in 20Q1 and accelerated quarter by quarter, while Lululmeon and Puma returned to positive growth in Q3. Other brands also reflected the flexibility of net profit repair as revenue improved.

Second, high online growth, gross profit margin: domestic repair, overseas is still tired

Strong brands are the first to resume shop opening.From the perspective of physical channels, domestic brands only Fila and Descente open net stores throughout the year, while other brand stores have a net decrease. We believe that mainly due to the decline in passenger flow caused by the impact of the ① epidemic in the first half of the first half of the year, ② has closed invalid stores for a long time, which is conducive to the optimization of store structure for a long time, and the net clearance range of shops has narrowed in the second half of the year.

Fila, Descente year-on-year net increase of 55, 39, showing a strong brand strength and channel control ability.

The epidemic catalyses the outbreak of e-commerce.Online, benefiting from the changes in consumption habits brought about by the epidemic, as well as the continuous deepening of omni-channel layout, various brands of e-commerce are growing at a high speed. Among them, Lululemon, Fila, Nike, Footlocker and Puma all achieved growth of more than 50%.

Retail discounts in the domestic market have been repaired and overseas have not yet returned to before the epidemic.Haitong believes that sold-out products and discounts are one of the key factors determining the company's gross profit margin.At the level of the whole year, the domestic and overseas markets are gradually recovering.

In the domestic market in 2020, domestic brands ANTA Sports Products and Li Ning's gross profit margin recovered significantly, Anta's gross profit margin increased by 3.2 pctFila compared with the same period last year, and Li Ning's gross profit rate remained the same as the same period last year, indicating that it has returned to the pre-epidemic level, mainly due to the increase in hanging price of new retail products, offsetting the negative impact of the increase in discounts during the epidemic.

In overseas markets in 2020, due to repeated global epidemics, the gross profit margin is still in the recovery stage, in which Under Armour2020 gross profit margin increased 1.4 pctdNike and Lululmon20 gross profit margin narrowed to within 0.5pct in the first three quarters of the year.

In terms of inventory, inventory digestion has been accelerated during the epidemic period, and inventory in the domestic market has returned to a healthy level. From the perspective of operating capacity, domestic companies all show strong inventory control ability, of whichThe inventory of Baosheng International and Xtep International decreased by 26.8% and 7.6% respectively compared with the same period last year, the inventory turnover days decreased by 7.3 days and basically unchanged, the inventory turnover of Li Ning Co. Ltd. decreased by 4.3%, and the inventory turnover days were basically the same as the same period last year.Haitong believes that when the epidemic affects the pressure on the income side, the excellent inventory index of the company is mainly due to the reduction of orders for new products on the company, increasing the digestion of old inventory, and further opening up online and offline channels to speed up product circulation.

In terms of cash flow, domestic sports enterprises are rich in cash and have no worries about their development reserves. The net operating cash of domestic sports enterprises is stable, of whichBaosheng International's net operating cash in 2020 was 5.1 billion yuan, an increase of 183.3% over the same period last year.This is mainly due to the improvement in operational efficiency and the significant increase in accounts payable. In terms of monetary funds, the cash flow of enterprises is adequate, of whichANTA Sports Products had a monetary capital of 15.3 billion yuan at the end of the year.Superimposed within 3 months, the short-term investment has a total currency amount of 20.3 billion, which reflects the healthy cash output capacity and provides a sound foundation for the continuous investment of the company's brands.

III. The growth logic of domestic sports enterprises in the future.

Macro levelThe sports industry has national policies to support long-term, steady and sustainable development in the national economy, youth education and infrastructure.

Industry levelGlobally, Haitong believes that Greater China will continue to be the leading region in the growth rate of the sportswear market in the next five years, in which professional sports shoes have the highest growth rate and the sports fashion market has the largest scale.

Company level:

① continues to expand the track space: based on mass professional sports, through the acquisition or development of sub-brand layout, sports fashion, high-end segments

② growth path from channel expansion to endogenous growth-brand power: research and development technology, first-class athlete endorsement, high commercial value event sponsorship-channel fine management: structure optimization, operation efficiency improvement

③ accelerates digital transformation: speed up product circulation, enrich consumer data, and improve terminal response speed.

IV. Investment suggestions

Haitong believes that$ANTA Sports Products (02020.HK) $Sub-brand FILA has a strong potential to continue, with H1/H2 revenue growth of 9.4% and 25.1% respectively, and a significant recovery trend in the second half of the year shows strong brand strength and channel management adaptability. We expect 2021Fila to maintain a rapid growth of more than 30%. Descente and Amer are at the stage of rapid development as the third growth curve.

Morgan Stanley up-regulated$ANTA Sports Products (02020.HK) $The target price is HK $173and the rating is increased. Morgan Stanley refers to strong growth of many brands, discounts and inventory improvements in the first quarter of the year. Management growth is expected to continue into the second quarter. FILA brand revenue is expected to grow by 15% to 19% this year. Anta brand revenue growth is expected to reach 40%, reiterating the increase in rating, raising earnings per share from 2021 to 2023 by 4%, 7% and 7%, with the target price rising from HK $161 to HK $173.

Haitong said$Topsports International Holdings Limited (06110.HK) $As the leader of domestic sportswear retail, the company continues to lead the development of the industry. based on its existing market position, the company continues to upgrade in digitization and stores.

$Baosheng International (03813.HK) $The trend of recovery with the epidemic in 2020 is significant. With the improvement of the company's future data platform, the improvement of the proportion of B2C business, and the continuous improvement of store efficiency, it will have more room for profit rebound.

$Xtep International (01368.HK) $Although affected by the epidemic in 2020, the trend of quarterly recovery was significant in the later period. According to Euromonitor, Xtep's market share of sports shoes in China was 4.7% in 2020, ranking seventh, ranking third among local brands, and the only sports brand with running as its core area. Haitong believes that the company's product innovation and cost-effective is the key to Xtep's leading position in the running field.