Anta Tightens Its Pace To Narrow The Gap With Lining

Anta sports is catching up, and the gap between 2331.HK and Lining is gradually narrowing. It is committed to becoming the most popular sportswear brand in China.

With the pformation of retail stores, the increase of profit margins and the enhancement of brand value, we expect that Anta sports's annual earnings growth rate will reach 39.8% annually from 2008 to 2010.

The valuation level of the stock should be comparable to that of Lining, so the revaluation of the upward valuation is worth looking forward to.

Our conservative forecast that Anta's target market covers more than 80% of the urban population and 10% of the rural population, totaling more than 500 million people.

Although Adidas, Nike and Lining are competing for high-end customers who account for 10-15% of the total population, Anta still focuses on developing the mass market.

Anta sells about 22 million pairs of shoes annually through 4600 sales outlets, and management expects that the growth rate of Anta's revenue will remain the highest in the industry until 2011.

We believe that the valuation of Anta sports should be the same as that of Lining.

According to the expected market price earnings ratio predicted by the market in 2008, Anta's current share price is 25% lower than that of Lining.

We believe that the discount rate will be gradually reduced, mainly because: 1, Anta's low-end market competition is not fierce, the market growth is also large, and Lining positioning in the middle end market, upward price adjustment will be subject to Nike and Adidas; 2, thanks to the effective use of marketing expenses and pure wholesale mode, Anta's operating profit rate is equivalent to that of Lining; 3, after deducting the idle cash from the initial listing, the net asset yield of Anta is basically the same as that of Lining, although Anta adopts vertical integration mode.

If Anta's expected earnings per share in 2008 were 43 times the same value as that of Lining, then the target price of Anta was HK $14, which is now 42.5% higher.

We rated Anta sports as "better than big city" for the first time.