ANTA Sports Products Ltd (SEHK: 2020) is a leading Chinese sports company. The firm’s share price has benefitted significantly from the promotion of domestic consumption by the Chinese government lately.
Since the beginning of the year, its share price has risen by 18%. In this article, I’ll take a look at four reasons why I think this rally is a reflection of the company’s strong fundamentals and not just hype.
It’s no secret that the 1.3 billion consumer market in China is driving the growth of the global sportswear market nowadays.
As such, global sportswear giants like Nike Inc (NYSE: NKE) and Adidas AG (XTRA: ADS) have been trying to expand and capture this market.
With positive factors such as rising disposable income and government initiatives like “Healthy China”, investors can expect the sector to grow even further.
China currently has the second-largest sportswear market in the world, right after the US. It is expected to register an annual growth rate of around 10% in the next three years, which dwarfs the 5% expected annual growth rate in the global sportswear market.
ANTA Sports is the homegrown leader in China’s sportswear market. With a 10% market share, it’s right behind the global giants, Nike and Adidas, which together have a market share of 40%.
Extensive brand offerings
ANTA Sports currently has comprehensive product and brand offerings. In addition to its own brand, ANTA, which focuses more on the mass market, it also owns the mainland Chinese operations of the brand, FILA, which targets the higher end market.
ANTA and FILA contributed 50% and 40% of its total revenue in 2019, respectively.
Besides these, the company also owns a list of other brands. For example, in 2019, it led a consortium to acquire the Finnish sports company, Amer Sports, that owns brands such as Wilson and Arc’teryx.
Under the corporate umbrella of ANTA Sports, it also has brands like DESCENTE (high-end sportswear brand), KOLON Sport (premium outdoor lifestyle brand), KingKow (kids’ fashion brand), and Sprandi (English sneakers brand).
Although ANTA Sports is a homegrown Chinese company, as one can see, the brands it controls and offers are much more than that.
With such extensive brand offerings, the company is well poised to benefit from the growth of the Chinese sportswear market in all segments and income groups.
Better fundamentals than its competitor
As such, ANTA Sports has delivered an impressive annual growth rate of more than 30% from 2015 to 2019.
Compared to the other homegrown player, Li Ning Company Limited (SEHK: 2331), which had an annual growth rate of 18% from 2015 to 2019, ANTA Sports clearly outperformed.
In terms of profitability, ANTA Spots’ net profit margin has been stable at around 20%, on average, for the past five years.
This is also much higher than that of Li Ning, which only has an average net profit margin of around 10%.
What is confusing, however, is the fact that ANTA Sports is trading at a lower EV/EBITDA multiple as compared to Li Ning.
ANTA Sports is trading at around 22x EV/EBITDA multiple, while Li Ning is trading at 27x.
If we further include Nike and Adidas, the average EV/EBITDA multiple of Nike, Adidas, and Li Ning is around 28x.
Whether investors compare ANTA Sports to the domestic player (or the international giants), ANTA Sports is undervalued.
In my opinion, ANTA Sports represents a bargain purchase, where investors can buy into the growth potential of the stock.
This is being driven by the Chinese consumer market, and ANTA offers a reasonable and cheaper-than-peers’ valuation. I believe its recent rally is more than just hype.