EUR 850.00 For Business Accounts Only

Morningstar | Anta's 3Q Result in Line With Estimate; Payout Ratio to Drop if Acquisition Goes Through

Narrow-moat Anta reported third-quarter operating performance in line with our 2018 full-year estimate, and we have no plan to change our current HKD 55 fair value estimate. We attribute the recent drop in Anta’s share price to worries over the recently proposed buyout of Amer Sports. As we highlighted in our previous note, Anta’s intent to purchase Amer is strategically sound, and given potential synergies between the two businesses, its buyout offer is valuation-neutral. We believe the market is focusing too much on the short term and encourage investors to focus on the long-term positives coming out of the acquisition.

Anta’s core brands, Anta Adults and Kids, recorded moderate third-quarter sales growth of around 15% year over year. The non-Anta brands side, which represents Fila China sales predominantly, posted 90% to 95% growth in the third quarter, in line with our full-year expectations. Management said the company’s inventory level remains healthy, easing investors’ concerns regarding overstocking and subsequent discounting.

In addition to brief updates on its third-quarter retail sales performance, Anta provided few extra details on its proposed acquisition of Amer. The company reiterates the interest rate for financing will range between 3% and 4%. While the group’s dividend payout ratio is likely to dip in the few years following the Amer acquisition, it has a negligible impact on our free cash flow assumption. Overall, we remain optimistic about Anta’s ability to utilize its existing manufacturing and distribution strengths to bring Amer products into mainland China, increasing their store counts and revenue potential.