Investment In R&D And AI Will Drive Future Product Development

Key Takeaways

• ANTA's focus on brand expansion, innovation, and digital transformation could lead to higher revenues and improved margins.
  
• Strategic R&D investments and share buybacks aim to boost product development and enhance EPS, benefiting shareholders.
  
• Weak consumer confidence and competitive market conditions could challenge ANTA's revenue growth and profitability, especially with risks in brand transformation and strategic execution.

Catalysts

Engages in the research and development, design, manufacturing, and marketing of shoes, apparel, and accessories in the Mainland of China, Hong Kong, Macao, and internationally.

• ANTA Sports is focusing on expanding its brand portfolio and engaging in product innovation, which may lead to increased revenue through diversified offerings and capturing new market segments.
  
• The company's investment in R&D and partnerships with institutions like Tsinghua University positions it for enhanced product development, potentially improving earnings by launching high-demand products.
  
• ANTA's digital transformation efforts, including the use of AI for efficiency improvements and better store management, are likely to bolster net margins by reducing operational costs and increasing sales.
  
• High growth and efficiency in online channels, achieving a 20% growth rate, suggest future revenue expansion through enhanced e-commerce capabilities and market reach.
  
• ANTA Group's plan for substantial share buybacks, at least HKD 10 billion over the next 18 months, aims to improve earnings per share (EPS) by reducing outstanding shares and returning capital to shareholders.

ANTA Sports Products Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ANTA Sports Products's revenue will grow by 10.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 19.9% today to 19.1% in 3 years time.
• Analysts expect earnings to reach CN¥17.2 billion (and earnings per share of CN¥5.87) by about February 2028, up from CN¥13.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CN¥14.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.5x on those 2028 earnings, up from 17.1x today. This future PE is greater than the current PE for the HK Luxury industry at 9.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.08%, as per the Simply Wall St company report.

ANTA Sports Products Future Earnings Per Share Growth

Risks

• The overall consumption recovery is still weak, with consumer confidence low at a consumer confidence index of 86.2%, which could hinder revenue growth for ANTA.
  
• Retail growth for apparel, footwear, and hats is only slightly above the broader retail market, indicating a slow market potentially impacting sales and revenue growth.
  
• The Fila brand's operating profit margin decreased by 1.1 percentage points due to increased investments, which could pressure earnings and overall profitability if these investments do not generate expected returns.
  
• The competitive sportswear market and the need for market adjustments suggest execution risks, especially in brand transformations, which could impact sustained revenue growth and profitability.
  
• ANTA's strategy relies heavily on maintaining high store efficiency and penetration into new markets; failure to execute these strategic initiatives effectively may affect revenue and net margins.

Valuation

• The analysts have a consensus price target of HK$111.627 for ANTA Sports Products based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$138.65, and the most bearish reporting a price target of just HK$71.44.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥89.9 billion, earnings will come to CN¥17.2 billion, and it would be trading on a PE ratio of 21.5x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of HK$86.0, the analyst price target of HK$111.63 is 23.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.