Introduction to this report:
Revenue for 2023 was in line with expectations, and profit was higher than expected. Maintaining previous revenue growth guidelines in 2024, Amer's reversal of losses and one-time earnings are expected to increase profits.
Summary:
The investment suggests that China's sports industry has entered a new stage of stable total volume and structural differentiation. As a scarce multi-brand sports leader, the company is in line with the new development trend. We expect the company's net profit to be 132.6/140.7/16.08 billion yuan in 2024-2026, respectively. The current stock price corresponds to PE 16/15/13 times, respectively, to maintain the “gain” rating.
Revenue for 2023 was in line with expectations, and profit was higher than expected. In 2023, the company's revenue was 62.36 billion yuan, up 16.2% year on year; net profit including share of the joint venture was 10.24 billion yuan, up 34.9% year on year. We believe that the profit side exceeded expectations mainly due to: 1) the market anticipated that the deepening of discounts on the main brand would drag down gross profit margins, but thanks to the 7pct increase in high-margin DTC share, and the main brand's gross margin increased by 1.3 pct; 2) Fila 2023 annual discount improvement of 2pct year-on-year led to a 2.6-pct increase in gross margin; 3) The advertising expenditure ratio fell 2.1 pct year on year, reaching a new low in nearly five years, mainly due to the weak terminal environment, the company reduced marketing projects in non-competition years; 4) 2023H1 had an inventory provision of 189 million yuan. Thanks to H2 Ole and the efficient removal of inventory online, 20 million reserves were returned throughout 2023.
In 2023, the number of main brand stores/store efficiency were both driving growth. Fila e-commerce was excellent, and other brand store efficiency increased. The main brand/Fila 2023H2 revenue all accelerated month-on-month, mainly driven by offline (net increase of 228 stores; same double-digit increase in store efficiency); thanks to the good performance of live streaming channels, Fila's online growth rate was higher than offline (net decrease of 12 stores); Descent/Colon stores decreased net by 4/net increased by 3, respectively, and store efficiency drove growth (monthly store efficiency was nearly 2 million/1,000+ million, respectively)? Turnover is expected to grow steadily in 2024, and Amer's loss reversal and one-time earnings are expected to increase profits.
The Group maintained its previous revenue growth guidelines for the full year of 2024: main brand/ Fila 10-15%, Descente 20% or more, and Kolon above 30%. Due to the high base of 2024Q1, the Group's turnover target is lower than the whole year; sales were relatively poor due to the cold weather in early March. There has been a marked improvement in the last two weeks, and the Q1 turnover target is expected to be achieved. Furthermore, Amer's 2024 EPS guideline is 0.3 to 0.4 cents, which is expected to contribute about 500 million dollars in investment income based on Anta Group's 43% shareholding; at the same time, Amer's listing will bring the Group a one-time income of 1.6 billion dollars, which is expected to be recorded in 2024H1.
Risk warning: Competition in the industry intensifies, and store expansion falls short of expectations