EUR 850.00 For Business Accounts Only

Morningstar | Tencent and Founder of Lululemon Rumored to Join Anta's Buyout of Amer; No Change in FVE

Though details are sparse, we view the recent news reports that wide-moat Tencent and Chip Wilson (founder and former CEO of narrow-moat Lululemon) are considering joining narrow-moat Anta’s acquisition of Amer Sports as a compelling partnership that opens post-acquisition Anta up to numerous domestic and international opportunities. Instead of diving into China’s sportswear business themselves, Tencent's and Wilson’s intentions of taking minority stakes in the consortium strikes us as both parties having strong confidence in Anta’s ability to nurture premium brands in China. This development itself does not affect our HKD 55 fair value estimate for Anta, which assumes the deal goes ahead at EUR 40, but it does leave room for potential upside once the deal is finalized and more details are available.

Tencent, on one hand, can undoubtedly leverage its huge traffic and user base to accelerate and heighten consumers’ awareness of acquired brands. We think the potential cross-sharing of behavioral data will help Anta to understand its targeted customer base better and ultimately lead to better sales conversion. Billionaire Wilson, on the other hand, was the mastermind behind Lululemon. Widely known as the creator of the athleisure trend, Wilson can bring forth his breadth of knowledge in brand development, especially in the non-China part of Amer’s business. Rumor has it that Tencent is planning to take a 5%-10% stake, while Wilson will take up to 20% of the Amer buyout consortium. Overall, we continue to think Anta’s intention to acquire Amer Sports is strategically sound, and we encourage investors to focus on the long-term positives coming out of the acquisition.

On a separate note, we recently added Anta to our Best Ideas List. We think Anta’s share price is still recovering from a short-seller attack two months earlier. We continue to stand by our rebuttal to the short-selling report and do not believe the material drop in the stock price was warranted. At the same time, Anta's book of business is looking stronger than ever. Sales of Fila products are on track to deliver a 44% compound annual growth rate over the next three years, and the core brand should continue to provide steady growth in second- and third-tier Chinese cities. We further believe the Chinese sportswear market is set to boom over the next 10 years as disposable income rises and sports participation grows. This is coupled with the growing acceptance of wearing activewear outside the sports setting. As the leading domestic sportswear company with a stellar operational record, Anta is set to benefit. We see Anta shares as significantly undervalued and urge investors to buy shares of the company and capture the potential upside.