From The Valuation Point Of View, Does Lining Anta Have Medium And Long-Term Investment Value?

After the public health incident, the market is more concerned about the overall recovery of the industry and the changes in the short-term data. This report hopes to jump out of the short-term data, and explore the market drivers of two companies' valuation drivers, differences, mid-term valuation centers and investment value from a more long-term perspective, providing new perspectives for investors.

Looking back at the historical valuation trend of Lining (02331) and Anta (02020), we find that there has been a significant improvement in the valuation center of the two companies since 2019, but there are differences in the logic of promotion. (1) the main logic of Lining's valuation improvement is "profitability Plus + the surge in revenue driven by the national tide". From the comparison of the historical mean value and the two dimensions of peer competition, we expect that Lining will have more than 4 PCT profitability in the future. With regard to the tide of state, we believe that under the current macro situation and the iteration of the main consumption crowd, the tide of the state is likely to exist in the consumption field for a long time, and the driving force of the valuation of the company will continue. (2) the main logic of Anta's valuation improvement is multi brand and internationalization strategy, especially FILA revenues continue to exceed market expectations. Looking forward to the future, we believe that the future FILA performance will not exclude the possibility of exceeding expectations, benefiting from the improvement of inefficient stores, the upgrading of footwear categories, the moderate expansion of stores and the extension of multiple series. In addition, although the market is worried about the short-term impact of overseas public health events and the cultivation time of the Chinese market, we believe that the scarcity of many quality brands of Amer superimposes the company's excellent multi brand operation capability, and the mid term Amer will bring significant value to the company.

Why is Lining's short-term valuation higher than Ann? We think there are two main reasons: 1, Lining has a higher certainty of improving profitability. PE implies the expectation for growth next year. According to Bloomberg data, after 2018, Lining's long-term PE coincides with that of Anta's PE in the next year. 2, Lining brand recognition is high, in the domestic counterparts pay more attention to originality, has certain scarcity.

Where are the middle and reasonable valuation centers of Lining and Anta? We believe that the competition pattern of the domestic sports apparel industry has initially approached the foreign market, and the company with genuine brand power will finally stand out and enjoy the valuation premium. Anta and Lining are the only two sports apparel companies that really realize brand upgrading in China's domestic enterprises. Among them, Anta relies on extensive acquisitions and multi brand internationalization to achieve brand upgrading. Lining's brand recognition is relatively high. At the same time, it relies on endogenetic cultivation of "China Lining" brand to continuously enhance brand influence. We expect that in the future, Lining and Anta's valuation system is expected to switch to Nike ADI's PB-ROE from the current PEG, which is expected to remain at 25-30 times and 20-25 times the valuation level in the medium and long term.

Looking at the future, how do we look at the long-term investment value of Lining and Anta? Taking into account the overall growth rate of the industry, the competition pattern, the company's future planning and the historical compound growth rate, we will make a general calculation from the two dimensions of PE valuation and net profit growth. The initial conclusion is as follows: Lining: PE valuation is expected to maintain about 25-30X in 2024. Net profit growth, the 2019-2024 compound growth rate of about 24%; Anta: PE valuation, in 2024 Anta, FILA and Amer were maintained at 20-25X, 25-30X and 22-28X, net profit growth, the 2019-2024 compound growth rate of about 17%.

Investment proposal and investment target: we keep optimistic about the high sportswear of sports apparel industry, and the long-term growth space of leading enterprises Lining and Anta. We recommend Lining (02331, buy) and Anta sports (02020, buy). We recommend paying attention to Tao Bo (06110, overweight) and Shenzhou International (02313, buying).

Risk warning: the possible impact of economic slowdown on sportswear retailing; the risk of two outbreaks of public health events at home and abroad; the management challenges and financial fluctuations of international mergers and acquisitions and multi brand development; and the risk that Lining Anta's future performance is less than expected.

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Introduction

In recent years, Lining and Anta have attracted great attention in capital markets, benefiting from the high degree of vitality and strong characteristics of sports apparel. According to the forward-looking industry information network data, the sports apparel industry's compound growth rate in the past five years is 16%, leading to the overall growth rate of the apparel industry. On the other hand, the performance differentiation among brands is obvious. The FILA, Lining and Anta retail in domestic Brand Company perform better, while the second line brands XTEP and the 361 run a lot.

After the public health incident, the market is more concerned about the overall recovery of the industry, as well as the changes in short-term data. This report hopes to jump out of the short-term data, and explore the market drivers of two companies' valuation drivers, differences, mid-term valuation centers and investment value from a more long-term perspective, providing new perspectives for investors.

The historical valuation logic of Lining and Anta

We selected a number of representative leading companies in the upper, middle and lower reaches of the industrial chain: the upper reaches of Shenzhou International, the middle reaches of Nike, Adidas, Lulu lemon, Lining and Anta, and the lower reaches of Tao Bo and Baosheng international. By comparing the difference of the valuation level, we found that the middle reaches brand valuation > upstream supplier valuation > downstream dealer valuation. We believe that in different links of the sports industry chain, the difference of the valuation of the leading companies is mainly determined by the strength of bargaining power, and the brand side has the strongest bargaining power in the industrial chain, so investors are more willing to give high valuation. On the other hand, the valuation of each Brand Company is related to many factors, such as expected net profit growth, brand strength, corporate governance and so on. In this chapter, we will comb the historical valuation logic of Lining and Anta in detail, and finally give our views on the valuation differences between them.

The main logic of Lining valuation raising: profitability

Recovery + higher income from national tide assisting

Looking back at the trend of PE since the listing of Lining, we divide it into two stages in 2019:

1) before 2019: after excluding 2008-2009 years of financial crisis and 2013-2015 years of losses, Lining's valuation center basically maintained at 10-30 times the range.

Around 2010 and 2016-2018 years (20-30 times valuation):

Around 2010: it benefited from the rapid expansion of the stores in the post Olympic era, and the net profit growth in the first few quarters of 2010 was more than 30%. The market is optimistic about Lining's future performance and gives a high valuation level.

2016-2018 years: after the return of the founder Lining, the company reversed its dilemma, and the net profit margin repair logic was clear, giving a higher valuation level.

2011-2012 years (10-20 times valuation): the market observed that the company's channel inventory is high, and the industry is likely to fall into a sharp recession, and the valuation level has been greatly reduced.

2) after 2019: Lining's valuation center has greatly improved and moved up to 30-40 times. We believe that the reason why the valuation moves upward is not only the 2019 net profit growth exceeding expectations (net profit margin repair logic, deducting one-time expenses increased by 77% over the same period) and the overall industry boom and so on. What is more important is the promotion of the brand power promoted by "China Lining" and the booster of the electricity supplier under the tide of the national tide. Bring more imagination.

Therefore, we believe that the future valuation trend of Lining will mainly depend on the sustainability of the two logics of "profitability recovery" and "high revenue growth under the impetus of the national tide", which will be discussed in detail below.

1, how much more space does Lining have to improve profitability? What is the source of the promotion?

First of all, look at the logic of profitability recovery. In order to eliminate the interference of other factors, such as business receipts and payments, we choose the operating margin as the main measure. What investors are most concerned about is how much room for improvement in the future in the context of profitability in the past few years. In order to solve this problem, our team, starting from the two historical dimensions of its own historical comparison and competitors' comparison, roughly predicts that there will still be more than 4 PCT improvement space in the future.

1) compared with its historical average, the operating profit margin is expected to exceed 4 PCT.

After listing, the trend of Lining's operating profit rate can be divided into three stages.

Rapid development period (2006-2010 years): benefiting from the high-profile exposure of Lining, founder of the Beijing Olympics in 2008, the company achieved rapid growth in revenue and profit through the expansion of offline stores. This stage is also one of the most rapidly developing periods of Lining. In the 2006-2010 year, the average operating profit margin of Lining is about 15.2%, a record high.

During the recession (2011-2014 years), the industry entered the recession mode after:2010 years, and Lining was seriously affected. The huge inventory impairment made Lining's operating profit rate drop to 7.1% in 2011, and the operating profit margin in 2012-2014 years even dropped to negative.

Dilemma reversal period (after 2015): with the intervention of founder Lining, the company reverses its difficulties, and its operating profit rate rises year by year, and has risen to 11.1% in 2019.

We believe that with the increasing intensification of the Lining management team and the continuous optimization of internal efficiency, there will still be an opportunity to reach a high operating profit margin of 2006-2010 years (mean 15.2%), which is still more than 4 PCT in 2019.

2) compared with competitors, the operating profit margin is also expected to exceed 4 PCT.

From the perspective of domestic brands, the comprehensive business environment is similar to that of Lining.

Anta: because of its iron culture and excellent management capability (reflected in the control of dealers), Anta's operating margin is at the top of all domestic and foreign benchmarking brands, with a profit margin of 25.6% in 2019 and a stable level of 23.6%-25.6% in the past four years.

XTEP (01368) and 361 (01361): domestic second-line brand, the average operating profit in 2019 is about 14.8%.

From the perspective of international brands, the operation area and business mode are different from those of Lining, but the comparability is not strong.

Nike, Adidas and Puma: from the perspective of operation area, Nike, ADI and Puma are all globally operated. The rate of fee is relatively high, the average operating profit level is 11%, while Lining is mainly in the single regional operation in China. From the perspective of business mode, both the three brands and Lining have adopted a mixed mode of direct sales + distribution.

Lulu lemon: from the perspective of operation area, Lulu lemon is mainly operated in the United States and Canada, similar to the single regional operation mode in Lining China. However, from the perspective of business mode, the difference between Lulu and lemon is very high, while Lining adopts the mixed mode of direct camp + distribution. Judging from its performance, Lulu lemon has its operating profit rate of 22.3%, which is close to Anta's profit margin level, thanks to its super high single store operation efficiency.

Through the above analysis, we believe that domestic brands are more suitable for the target market. After excluding Anta, the average operating profit margin of XTEP and 361 is about 14.8%, while Lining, as the leader of the industry, has a future operating profit margin that is not lower than this level. In the medium term, there is still more room for more than 4 PCT.

According to our follow-up understanding, Li Ning Co has also been improving profitability in recent years as one of its main business objectives. Judging from the split of financial indicators, we believe that the company is expected to continue to make efforts in terms of "advertising and marketing expenses", "staff cost expenditure" and "transportation and logistics expenses", so as to enhance overall operational efficiency.

1) advertising and marketing expenses: Lining's own brand power itself is relatively high. In addition, "China Lining" brings the national fever to the word of mouth marketing, and forms fission through new social media. Therefore, compared with the competitors, Lining does not need to invest too much advertising and marketing expenses. Although there has been a downward trend in advertising and marketing expenditure over the past few years, we still think there is room for streamlining.

2) staff cost and transportation and logistics expenses: we believe that the new CEO Takasaka Takeshi is expected to replicate the successful experience of retailing and supply chain management during the period of UNIQLO, and enhance the overall efficiency of the group and reduce unnecessary expenses at the supply chain.

2. What is the reason for the rise of the national tide? How long can it last?

In February 2018, Lining debuted the international fashion week for the first time and launched the "China Lining" brand that led the country's fashion. Despite Lining's rush to prepare for the fashion week before the fashion week, the time is tight, but the effect is bigger than expected. After two years, "China Lining" brand performance has gone all the way, and has become a classic case of Chinese brand marketing.

The market thinks that China's Lining is closely related to the rise of national fashion. So investors are most concerned about the reasons for the rise of the tide of state and how long it will last.

1, the rapid growth of local brands is the precondition for the rise of the national tide.

We believe that the growth of local brands is reflected in three aspects, first of all, the improvement of product quality. After 20-30 years of development, domestic brands have gradually got rid of labels such as poor quality products and Shanzhai. Leading brands have an efficient supply chain system, and some of their products have reached the international leading level, and have gradually gained the recognition of mainstream consumers. Secondly, the upgrading of marketing means quickened the touch of consumers. We believe that the rapid development of Xiaohong book, jitter and electronic business platform in recent years has not only enriched the marketing methods of brand enterprises, but also more important is that they can reach consumers quickly, communicate directly with the target audience, and the E-commerce platform also actively caters to this trend. After 2019, the related activities of the national tide are concentrated. Occupy the minds of consumers. Finally, the construction and improvement of brand power. Many domestic brands led by Lining have gradually changed from selling thinking to consumer centered brand thinking, with strong R & D capability and stable product capability, upgrading brand and competing for the right to speak in the consumer market.

2, after 90 and after 00, open and independent consumption concept is the "help" of the rising tide of the country.

With the 1990s and 00 becoming the main consumer of the domestic market, the difference between the consumers and the older generation is that the young people are no longer able to see the blind fascination of overseas brands. They are more open and tolerant, and dare to taste, pursue individuality and self-expression. All these have given equal opportunities to the growing local brands and foreign brands. As mentioned above, with the continuous improvement of local brand product quality, marketing ability and brand power, the home brand advantage of local brands in China will gradually expand. According to data from the people's Network Research Institute, the 20-29 year old group had the highest concern for Chinese brands, which improved significantly compared with 2009.

In addition, according to the first financial report, the local brand of sports apparel industry has the highest proportion of consumers' support for Lining brand, and has gained the first mover advantage.

3, national self-confidence brought about by the promotion of national strength is the core driving force of the rise of the national tide, and is also the key to the continuation of the tide of the future.

The rapid rise of China's economy is not only the living standard of the people, but also the self-confidence and pride of the Chinese people, and the resulting identity will be directly reflected in the propensity to consume. The most typical example is the Chinese elements in the Chinese design of Lining. In the past, the English alphabet elements were generally regarded as the trend in the costume design. On the other hand, whether the Sino US trade war, nationalism worldwide or the reverse globalization caused by public health events will directly or indirectly enhance the sense of national pride and identity of domestic consumers. We believe that these phenomena will last for a long time, which means that the trend of the tide is hard to be reversed in the short term and is likely to exist for a long time. Therefore, China Lining, with strong national wave attributes, will further enhance the overall brand influence of Lining, thus continuing to boost sales growth.

The main logic of Anta valuation upgrade: multi brand and internationalization strategy has been verified continuously.

Looking back at the trend of PE since the launch of Anta, we also divide it into two stages in 2019:

1) before 2019: in addition to the financial crisis, PE valuation and net profit growth were expected to be consistent.

2011-2012 years (5-15 times valuation): Anta's valuation has also been sharply reduced due to industrial recession.

2009-2010 and 2013-2018 years (15-25 times valuation): Valuation and net profit growth is expected to fluctuate.

2) after 2019, the valuation level of Anta has significantly improved, the highest in the year and even exceeded 30. We believe that the success of multi brand and internationalization strategy, especially the performance of FILA brand continues to exceed the market expectation, is one of the main reasons:

Specifically, according to Bloomberg data, PE in 2019 increased from 18.9 times at the end of January to 23.6 times the highest value at the end of October, and maintained 30.6 times at the end of the year. Combined with the announcement of the company's historical results, we believe that the promotion of PE is mainly driven by the company's operating performance outperforming the market expectations. (the main brand maintains a relatively fast growth, FILA continues to exceed expectations, and Desanto gradually becomes a climate). In 2020, March, the valuation of companies returned to the low level (21-23 times) due to public health events, and the level of valuation in April was significantly higher than that of the industry. Grassroots research shows that the FILA recovery in public health events is obviously better than that of peers. It is expected to drive the company's overall valuation out of a similar upward trend in 2019.

1, why does FILA continue to exceed expectations?

Since 2015, FILA has been riding the dust in the industry. The ultra high retail growth rate has constantly refreshed people's awareness of sports fashion brands. We believe that there are 3 main reasons for this:

Reason 1: accurately positioning the sports fashion demand of the 25-35 year old crowd, effectively filling the market blank of the domestic sports fashion category. FILA has a brand fashion gene. As early as in 1970s, when the FILA spokesperson, Berg, had already started the fashion change of tennis apparel. After 2010, there was a huge market gap in sports fashion category. FILA clothing improved the wearing comfort by the fabric technology, expanded the brand apart from the sports space and wearing scenes, and won the recognition of the consumers in the second tier cities in China.

Reason 2: to expand the market influence and cover the crowd through various marketing means, there are three main points.

A) FILA adapts to the changes of consumption environment through "multi scenario creation" to expand the brand touches the crowd and enhance the brand influence. After the success of brand positioning, FILA extends the popularity of brand life by maximizing the "multi scene creation". In 2017, when Yao Weixiong, President of FILA, shared the FILA's scenario revolution, it could be divided into four specific ways, namely: product, scene, cross link, link, share, namely, acquisition and popularity, that is, traffic flow. By expanding the scene of the brand and expanding the product line, the audience and influence of the product will be expanded. This will further strengthen the FILA brand's control over fashion. Power.

B) FILA creates hot spots and consolidates fashion genes through cross-border joint names. FILA has collaborated with brands including the American fashion brand "staple" and Hongkong's famous fashion brand "b+ab". The well-known cooperative designers who have already collaborated include Anna Sui, Wu Jigang, Ginny Hilfiger and Lin Neng equality, of whom Wu Jigang has worked for more than 4 years, Ginny. Hilfiger's cooperation has also exceeded 3 years. The stable cooperation with famous designers has ensured the stability and continuity of the brand's connotation.

C) the release of several FILA brand series helps the smooth implementation of the scene revolution, making the brand value to the greatest extent realized. After 4-5 years of adjustment, Anta's acquisition of FILA brand has seen a rapid growth in terminal water flow. Since 2015, on the basis of the increasingly strong influence of the main brand, the company has continuously released the sub brands FILA KIDS and FILA FUSION, expanding the market segments from children to youth to adults, meeting the different needs of consumers, and opening up more room for the development of the brand in the medium and long term. In August 2018, FILA released FILA ATHLETICS to build high-end professional sports sub brand, positioning young people, focusing on tennis, golf and other personal special sports products sales.

3 reasons: management's super execution and wolf culture. Although FILA's overall brand operation is relatively independent from Anta's brands, the company still has a more progressive culture and incentive mechanism, which also plays a very important role in promoting brand development.

Looking forward to the future, in addition to the above three points, we believe that the driving force of FILA's future growth also includes: 1) the improvement of inefficient stores; in 2019, the store efficiency of FILA is around 800 thousand yuan, but 40% of the shops are below 500 thousand, which will be the focus of integration and adjustment of FILA stores in the future. 2) increase the proportion of shoes category. At present, FILA shoes account for only 20% of the total. Compared with Anta's main brand and Lining, there is still much room for improvement. Therefore, we think that FILA is far from the ceiling. With the expansion of 5-10% and the rapid growth of the same store, future performance does not rule out the possibility of exceeding expectations.

2, how to view the value of Amer Sports?

Looking back at the history of FILA's success and the rising brand of Desanto, Anta's multi brand international operation capability has been fully demonstrated. Looking ahead, how Anta's valuation of this business has been the focus of discussion in 2019 after Anta's acquisition of Amer Sports through leveraged buy-out. Contrary to some market views, we believe that the value of Amer Sports is not fully reflected in the current market value, but in the medium to long term, Anta will bring a valuation premium.

We believe that in the short term, the capital market has not reflected the value of Amer in the stock price due to the following two main factors:

Reason 1: worry about the uncertainty of overseas public health events

From the perspective of the income structure in 2018, the main source of income of Amer Sports was the Americas and European markets (the most serious public health incidents), accounting for 42% and 43% respectively, while the Asia Pacific region accounted for only 15%. According to the quarterly EBIT structure, Q2 is the traditional off-season of Amer Sports, and has less contribution to the whole year's EBIT.

Because of the uncertainty in the prevention and control of public health events in overseas markets, it is difficult to accurately estimate the expected revenue and profits of Amer Sports 2020 in the whole year. We think July is an important observation node. If the overseas public health events are effectively controlled before July, the impact on Amer Sports's annual revenue and earnings will be relatively controllable. We believe that, due to the uncertainty of public health events affecting the future development, the market is more worried about the possible loss of Amer Sports in the short term, which is a drag on earnings. Therefore, the long-term synergistic premium arising from the acquisition of Amer Sports has not yet been reflected in the stock price.

Reason 2: the Chinese market with the greatest potential still needs time to nurture.

According to the press conference of Anta and Amer in December 2019, in the next 4-5 years, Amer will focus on three aspects: big brands: develop the brand of the original bird, Salomon and Wilson into "one billion euro brand", focusing on shoes and clothing category, and the proportion of category will increase from 40% to 50%. Big channel: accelerate the layout of DTC (direct to consumers), develop into "1 billion + Euro channel", the number of global direct stores will grow more than 2 times, the annual growth of global electricity supplier will reach 30-40%, and the proportion of revenue will rise from 11% to 30%. Big country: China's market sales increased by more than 4 times, the number of self operated stores increased by 5-8 times, the income share increased from 5% to 15%, and the US market grew by about 50%.

The company's goal programming Amer revenue growth in the next 4-5 years will reach 10%-15%, and the profit growth rate will be higher than the income growth rate. We believe that if we do not consider the impact of public health events, whether the target can be achieved depends on the performance of the Chinese market. The main driving force is:

A) the rapid expansion of the birds and Salomon stores. By analyzing the core brand of Amer and combining Anta's strategy of focusing on shoes and clothing in the future, we believe that the original bird and Salomon will be the core focus of Anta's future in China. By the end of 2019, there were only about 100 stores with two brands. Compared with competitors Columbia and The North Face, the number of stores was relatively large. Through industrial research, we expect that the number of medium term channels of two brands will have more than 3 times of expansion space.

B) join in the direct battalion and copy the FILA operation experience. Anta is one of the few companies in the industry that can operate more than 10 billion brands at the same time. Over the years, the success of FILA and Desanto has fully demonstrated the strength of high-end brands in Anta's operation. We believe that Anta can transplant and share relevant experience, capabilities and resources to Amer's core brands, including existing channel resources, backstage IT systems and logistics systems.

C) holding multiple premium brands to enhance the channel premium capability. Over the past few years, the channel structure of garment industry has changed significantly, that is, the proportion of stores in shopping centers and shopping centers has increased, while the proportion of traditional street shops has declined. Because of the scarcity of quality channel resources, the bargaining power of shopping malls and shopping centers is generally strong, and can even directly determine the access, rent and location of brands. Anta currently holds high-quality brand resources such as FILA, primitive bird and Salomon, and can pack negotiations when entering the shopping mall, and strive for more benefits in terms of rent and location.

From the perspective of revenue and profit side, we analyze the Amer Sports performance in the short and medium term as follows:

1) revenue side: 2022 Winter Olympics is an important opportunity for store expansion. The match between the Winter Olympic Games and Amer's products is relatively high. Referring to Anta's past sponsorship history of the Olympic Games, we expect that Anta will increase the budget of the marketing input before and after the Winter Olympic Games. Meanwhile, the stores of the ancestors and the Salomon stores will also be speeded up before 2022.

2) profit side: the development of Desanto can be partly viewed as a forward-looking indicator of the ancestors and Salomon. We believe that among Anta's many brands, Desanto and Amer's brand are the most comparable. From the price point of view, the price range of Desanto's coat category is similar to that of the original bird, and the price range of shoes category is similar to that of Salomon. Judging from the category of products, Desanto's flagship skiing products are similar to those of the original bird and Salomon. Judging from Desanto's performance, since the acquisition in 2016, Anta has spent about 3 years to sort out and eventually break even in the middle of 2019. Therefore, we expect that the new stores in the mainland of China and the Salomon will take 2-3 years to break even (2023-2024 years) before they can make a positive contribution to Anta's report in the following years.

Drawing lessons from the development of multi brand of global sports leisure giant VF, we believe that Amer Sports's high-quality scarcity and multi brands will give Anta a long-term valuation premium. We believe that in the sportswear and even the entire apparel track, the successful operation of multi brand businesses is a very scarce target. From the valuation trend of VF, the market is willing to give additional premium valuation to companies with excellent brand operation ability. We believe that, with the gradual development of Amer Sports in China, the market will further enhance the recognition of Anta's multi brand and international operation capability, and the valuation level is expected to be raised again.

Why is Lining's short-term valuation higher than Ann?

Lining's profitability improved significantly, PE implied growth expectations for the next year.

As mentioned above, the Lining profit margin level in 2015 will be clear and clear. Looking ahead, no matter if we compare with ourselves or our peers, there will be no real mistake in the next few years. The profit margin of 4 PCT will be real and possible. In addition, over the past two years, the management of the company continued to focus on improving profitability. During the public health events in 2020, the net profit of the whole year still anchored 1-1.5%'s target. We believe that it is precisely because of the relative certainty of net profit increase that investors can see "one more year" in the future, that is, the current PE valuation implies the growth expectation for the next year.

Specifically, according to Bloomberg's unanimous expectation, the coincidence degree of Lining PE in 2018 was higher, basically 25 times. From the late 2018 to now, Lining's PE has been improving continuously. Lining's next year's PE coincides with that of Anta's PE in the year. It has proved Lining's view of "seeing more than one year" than Anta's investors. "Bloomberg"

Lining has a high degree of brand recognition and has some original scarcity.

In the domestic brand, the company pays more attention to originality and designer culture, brand recognition is high, and the ability to design and develop is more prominent. The company attaches great importance to original design at the beginning of its creation. Lining, the founder, always believes that originality is a cause worthy of persistence and struggle. In 1998, 8 years after the establishment of the company, China has established the first Chinese clothing and footwear product design and development center, and has been the first to become a self developed Chinese sporting goods company. Since then, the company has set up a design and Research Center in Hongkong, Portland and Beijing to consolidate its product design and research capabilities. Therefore, we believe that the stunning product presented by Lining in fashion week is not achieved overnight. Instead, it stems from the company's long-term adherence to the original design and precipitation, helping Lining seize the initiative in the rising tide of national tide.

On the other hand, Lining's brand has a lot of details and connotations, which is scarce in domestic brands. Lining, the founder of the company, has created the myth of World Gymnastics history. He has won fourteen World Championships and won more than 100 gold medals. In 1990, after he retired from the army, Lining founded the sporting goods company named after him, and occupied the first brand of the national sports apparel for a long time. In 2008, Lining, as the last torch bearer of the Beijing Olympic Games, stroll around the bird's nest for a week to light the Olympic flame.

Where are the middle and reasonable valuation centers of Lining Anta?

Why can Lining, Anta and other overseas leading companies such as Nike and Nike?

We believe that in the domestic brand, Lining Anta is most likely to become the Chinese version of Nike or Adidas. In order to demonstrate this view, this report reviews the development process of the sports apparel industry from the perspective of the change of the industry structure, and summarizes the three development stages of the sports apparel industry.

1, the perfectly competitive market (1990-2010 years):

The 20 years before 2010 were the golden age of the development of sportswear industry. The participants were mainly Jinjiang based companies (formerly Nike ADI's foundry), and the market was in full competition. Although the industry is still in its infancy, the demand side is very strong, and the supply of products is in short supply. At this stage, we believe that the key to the success of the company lies in the national marketing advertising and channel layout. Specifically, on the one hand, companies are reaching the minds of consumers through a large amount of marketing input. Typical cases such as Anta inviting ping pong player Kong Linghui as a brand spokesperson in 1999 and matching the slogan "I choose, I like" are rapidly developing. Nationally renowned, the company paid 3 million 800 thousand of its expenses (including 800 thousand of endorsement fees and 3 million of advertising fees), which brought huge business returns and gained recognition and imitation from peers. On the other hand, companies are rapidly expanding into offline channels to facilitate consumers' purchase, and the industry is developing rapidly into the fast lane. Indicators need to pay close attention to the company's marketing costs, leverage and turnover rate.

2, the transition from full competition to the leading market (2010-2018 years):

After 2010, the industry experienced a huge earthquake. In 2010 -2012, local leading enterprises experienced an inventory crisis due to over expansion after the Olympic Games. On the other hand, the impact of e-commerce and fast fashion brands also exacerbated the decline. When the industry came out of the recession, many small and medium-sized brands were cleared by the market, and the head effect was very obvious. The market share of the top four companies of Nike, Adidas, Lining and Anta expanded rapidly, and the market structure initially evolved from complete competition to oligopoly market. At this stage, the market gameplay before 2010 is no longer effective. Only those companies that focus on products (representing enterprise Lining) and retail operations (representing enterprise Anta) can win in the industry recession, and indicators need to pay close attention to R & D expenses and turnover rate.

3, the oligopoly market (2019 -):

The oligopoly market began to take shape after 2019. With the expansion of the scale of income, the moat of the domestic head brands Nike, Adidas, Anta and Lining has initially formed in the brand and operation area (the domestic brand market share is Top 4). With the aggravation of the head effect, the possibility of catching up with the two or three line brands is further reduced.

We believe that the competition pattern in the domestic market has initially approached the foreign market. In the long run, a company with genuine brand power will eventually win and get a valuation premium. Anta and Lining are the only two sports apparel companies that really realize brand upgrading in China's domestic enterprises. Among them, Anta has achieved brand upgrading by means of extension and merger (including FILA, Desanto, original bird and Salomon). Lining's brand recognition is relatively high, and it relies on endogenetic cultivation of Chinese Lining brand, and seize the young people pursuing the national tide to achieve brand upgrading. From this perspective, if the momentum of development continues, Anta and Lining will most likely become Nike in China. NKE.US And Adidas.

Where is the central and long-term valuation center of Lining Anta?

Looking back at the trend of PE and net profit growth of Nike and Adidas in the past 15 years, we find that in most periods, the net profit growth rate is lower than the PE level of that year. Judging from the global market, the valuation of the mature enterprise similar to Nike ADI does not apply to the traditional PEG framework, and the possible reasons for the overestimation of the maturity of the enterprise are more consistent with the PB-ROE framework.

1) investors are willing to give a higher valuation premium to the leading industry with good market competition, high growth certainty and obvious competitive advantages.

2) Nike ADI has adopted a stable dividend repurchase business model, because the demand for extended mergers and acquisitions and expansion capacity of mature enterprises is less, so dividends and repurchase can raise the rate of return on Book funds and maximize the interests of shareholders and investors. When Nike and Adidas announced the buy back plan in 2015 and 2016, ROE continued to improve in the next few years, pulling the overall valuation center upward.

In contrast, Lining Anta, the two company's net profit growth rate in recent years is still significantly higher than PE, and the valuation system of investors is still dominated by PEG. With the increasingly clear competition in the domestic market, we believe that they will gradually move closer to Nike ADI at the valuation level. Especially after 3-5 years, the market position of Lining Anta is further consolidated (along with the net profit growth rate slowing down after the scale effect), the market valuation system for the two companies is expected to gradually switch from PEG to PB-ROE. Reference to Nike and Adi, Lining and Anta brand's medium and long-term valuation level is not expected to decline sharply, Lining is expected to maintain 25-30 times the valuation level, Anta is expected to maintain 20-25 times the valuation level (including the main brand 20-25X, FILA brand 25-30X, Amer's brand 22-28X).

Looking forward to the future, how do we see the long-term investment value of Lining and Anta?

Most investors in the market recognize the future development potential of Lining Anta, but there is a lack of more quantitative discussion. This paper attempts to combine the industry's overall growth rate, competition pattern, company's future planning and historical compound growth rate and other factors. We will make a rough measurement from the two dimensions of PE valuation and net profit growth.

Lining:

PE Valuation: around 25-30X in 2024

As mentioned above, Lining's medium and long-term valuation level can still be supported, but the price earnings ratio has dropped slightly to 25-30X due to the initial realization of the net interest rate raising logic.

Net profit growth: 2019-2024 annual compound growth rate of about 24%

Hypothesis 1: in the next five years, the compound growth rate of revenue will be 14%, and the estimated revenue in 2024 will be 27 billion.

Suppose 2: the net interest rate raising logic is fulfilled, and the net interest rate in 2024 is expected to be 13.5%.

Anta:

PE Valuation: in 2024, Anta, FILA and Amer were maintained at 20-25X, 25-30X and 22-28X respectively.

As mentioned above, the medium and long term valuation level can still be supported without considering the promotion of multi brand operation to the valuation center.

Net profit growth: 2019-2024 annual compound growth rate of about 17%

Hypothesis 1: assume that the composite growth rate of Anta's main brand and FILA will be 9% and 18% in the next five years, respectively. The calculated revenue in 2024 is expected to be 26 billion 900 million and 41 billion 300 million.

Hypothesis 2: for the sake of simplicity, assume that the net interest rate of Anta and FILA will gradually converge, and net interest rate will take 2017-2019 three year average in 2024.

Suppose 3:Amer Sports contribution: according to the five year plan inference (including the compound income growth rate of 10%-15% in the next five years, the pre tax profit margin 10%+, and the consideration of PPA and loan cost), Amer Sports will contribute about 1 billion net profit in 2024.

Hypothesis 4: Desanto, Kron and other brands because of the smaller body size, will not consider these brands' contribution to market value.

Risk warning

(1) the possible impact of economic slowdown on sportswear Retailing:

Economic slowdown will lead to a decline in per capita disposable income growth, which will adversely affect the sales of alternative consumer goods such as brand clothing.

(2) the risk of two outbreaks of public health events at home and abroad:

With the gradual resumption of production at home and abroad, the two outbreak of public health incidents will not be ruled out, which will have a negative impact on the performance of the brand side.

(3) management challenges and financial fluctuations in international mergers and acquisitions and multi brand development:

In the past ten years, Anta has acquired many high-quality brands including FILA, Desanto, Kron, Amer Sports, etc., because of the differences between Chinese culture and Western culture, it may pose challenges to daily management, thus affecting Anta's short and medium term performance.

(4) Lining Anta's future performance is not as good as expected:

In this paper, the medium and long-term investment value of Lining's Anta is only calculated as a theoretical calculation. The growth of future income and net profit is related to many factors. The uncertainty is bigger, and there is a risk less than expected. In addition, PE valuation is likely to decline significantly due to factors such as company performance less than expected and market style switching.