ANTA Sports: Financial Advantage Expands New Business

The central government has made the expansion of domestic demand the top priority in order to achieve stable and relatively rapid economic growth. In October 2008, one of the objectives of the Third Plenary Session of the Chinese Communist Party was to double the per capita net income of farmers by 2020, which would increase domestic demand and rural consumption in the long run. As ANTA Sports' business focuses on more economical footwear and apparel products, expanding the public and rural markets in the Mainland will be beneficial to Anta. Anta had a cash of RMB 3.3 billion at the end of the first half of 2008 and did not have any bank loans. Its internal resources are sufficient to fund the company's expansion plan.

With cash of RMB 3.3 billion

Since ANTA's performance in the first nine months of 2008 was better than our expectation, and we expect stable demand from the mass market, we have adjusted our company’s earnings forecasts in 2008 and 09 to increase by 45% year-on-year, respectively. 32%. Our target price for the stock is 5.16 yuan, which is equivalent to 11 times the 2009 P/E.

In the global economic recession, the mainland municipalities distributed shopping vouchers to low-income families to revitalize consumption in the Mainland. The Hangzhou and Chengdu municipal governments have all issued RMB1 billion and RMB37.9 million shopping vouchers respectively. In Hangzhou, the average ratio of the value of shopping vouchers to the amount of consumption is 1:1. However, in the four major shopping malls in Hangzhou, the spending amounted to 3.6 times the value of the shopping voucher.

Adjust product portfolio to meet demand

As ANTA slightly adjusted its product mix to meet the changing market demand, the company's product sales volume in the first nine months of 2009 rose by 20% year-on-year, but the average selling price declined slightly. However, raw material prices are falling, and the drop in average selling prices means that more consumers are able to afford more economical products, so this will be beneficial to Anta's gross profit and the market's consumer demand.

In order to grasp the strong advantage of personal consumption in the Mainland, Anta has 5,400 outlets at the end of 2008, and the company has 5,193 outlets in the first half of 2008. The global economic slowdown has caused Anta to concentrate more on developing the mainland market and delay its promotion plans for overseas operations. In the first half of 2008, Anta’s international sales accounted for only 0.6% of the company’s total turnover.

The sales of sportswear in the Mainland are still far lower than those in developed countries. A number of international sports events will be held in the Mainland, including the 2009 East Asian Games, the 2010 Asian Games and the 2011 World University Games, which will help promote sports and stimulate sales of sportswear. In addition, Shanghai Disneyland and the planned Beijing Universal Studios theme park are expected to boost retail sales in the Shanghai and Beijing markets, and in the long run will benefit ANTA.