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Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

With sound positioning and pricing strategies, improved store image and products, more effort to respond to current trends, and proprietary research and development, we reaffirm Anta’s narrow moat rating and increase our fair value estimate by 5% to HKD 21 per share. After on-the-ground checks in Anta’s headquarters and factory in Jinjiang and Anta stores in Xiamen, we have more confidence in Anta’s adult strategy and products, and therefore raise our estimate for Anta’s adult offline revenue growth slightly to 4% in 2017 and 2018, and to 3% from 2019 to 2021. Our other forecasts are unchanged.The firm's pricing and market-positioning strategy appears sound to us, as Anta maintains its affordable collections while introducing more premium products to address the more premium market. Anta maintains lower-price-point products, which we think is reasonable, as its value-for-money proposition is the key advantage relative to international brands. The price increase of shoes for this trade fair is only 1%-3%, with an average selling price of CNY 355 per pair, which we think is prudent. On the other hand, we see some revenue upside coming from higher mix from more premium products to facilitate increasingly sophisticated consumer demand. We have seen more shoes launched at a price point above CNY 400. These premium shoes will be sold at stores where spend per ticket is the highest and will not be introduced in small towns and villages. Despite the launch of more expensive products, value for money is still a key focus. For example, Anta has introduced a pair of shoes made with leather that will sell at CNY 399, which we still view as good value for money. For products that are not price-sensitive, such as Klay Thompson’s basketball shoes, Anta has raised the price by CNY 100 to CNY 599. However, premium-priced Anta branded products are a small fraction of Anta’s portfolio, and so we do not anticipate substantial revenue upside.We think Anta’s latest Anta 8.0 store image and the products' look and feel are catching up with international sportswear brands. The appearance of the functional products is important, as most consumers demand functional products that also contain fashionable elements. We have seen more sophisticated textures introduced to Anta’s products, such as a pearlescent texture on certain women's shoes. We believe the improved appearance of stores and products will not only attract store traffic, but also help enhance Anta’s brand image and justify premium pricing relative to smaller local sportswear brands.Analyst: Chelsey Tam

With sound positioning and pricing strategies, improved store image and products, more effort to respond to current trends, and proprietary research and development, we reaffirm Anta’s narrow moat rating and increase our fair value estimate by 5% to HKD 21 per share. After on-the-ground checks in Anta’s headquarters and factory in Jinjiang and Anta stores in Xiamen, we have more confidence in Anta’s adult strategy and products, and therefore raise our estimate for Anta’s adult offline revenue growth slightly to 4% in 2017 and 2018, and to 3% from 2019 to 2021. Our other forecasts are unchanged.The firm's pricing and market-positioning strategy appears sound to us, as Anta maintains its affordable collections while introducing more premium products to address the more premium market. Anta maintains lower-price-point products, which we think is reasonable, as its value-for-money proposition is the key advantage relative to international brands. The price increase of shoes for this trade fair is only 1%-3%, with an average selling price of CNY 355 per pair, which we think is prudent. On the other hand, we see some revenue upside coming from higher mix from more premium products to facilitate increasingly sophisticated consumer demand. We have seen more shoes launched at a price point above CNY 400. These premium shoes will be sold at stores where spend per ticket is the highest and will not be introduced in small towns and villages. Despite the launch of more expensive products, value for money is still a key focus. For example, Anta has introduced a pair of shoes made with leather that will sell at CNY 399, which we still view as good value for money. For products that are not price-sensitive, such as Klay Thompson’s basketball shoes, Anta has raised the price by CNY 100 to CNY 599. However, premium-priced Anta branded products are a small fraction of Anta’s portfolio, and so we do not anticipate substantial revenue upside.We think Anta’s latest Anta 8.0 store image and the products' look and feel are catching up with international sportswear brands. The appearance of the functional products is important, as most consumers demand functional products that also contain fashionable elements. We have seen more sophisticated textures introduced to Anta’s products, such as a pearlescent texture on certain women's shoes. We believe the improved appearance of stores and products will not only attract store traffic, but also help enhance Anta’s brand image and justify premium pricing relative to smaller local sportswear brands.Analyst: Chelsey Tam

Field Trip to Anta's Headquarters Indicates Anta Is on the Right Track; Raising FVE by 5%

Reduced trade-fair orders as a percentage of total orders, a relatively high comparison base, and less favorable seasonality did not cap Anta's strong fourth-quarter 2017 trade fair orders. Fila and Anta adult offline sales in the first quarter of 2017 slowed year over year, with the former tracking 1,000 basis points above our full-year estimate of 30% and the latter in line with our full-year expectation of 3%. Anta Kids sales growth in the first quarter of 2017 was over 30%, higher than our full-year expectation of 20%.Given the strong sales growth of Fila and Anta Kids last year, we think maintaining the first-quarter growth rate in the remaining months of 2017 could be difficult. We therefore see no reason to change our forecasts, and we maintain our fair value estimate at HKD 20.0 per share. We view Anta as fairly valued.Analyst: Chelsey Tam

Reduced trade-fair orders as a percentage of total orders, a relatively high comparison base, and less favorable seasonality did not cap Anta's strong fourth-quarter 2017 trade fair orders. Fila and Anta adult offline sales in the first quarter of 2017 slowed year over year, with the former tracking 1,000 basis points above our full-year estimate of 30% and the latter in line with our full-year expectation of 3%. Anta Kids sales growth in the first quarter of 2017 was over 30%, higher than our full-year expectation of 20%.Given the strong sales growth of Fila and Anta Kids last year, we think maintaining the first-quarter growth rate in the remaining months of 2017 could be difficult. We therefore see no reason to change our forecasts, and we maintain our fair value estimate at HKD 20.0 per share. We view Anta as fairly valued.Analyst: Chelsey Tam

It's Gotta Be the Shoes: Anta's 2017 Fourth-Quarter Order Book Heats Up

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Equity Capital Markets

Anta Sports Products / Equity Capital Markets

Anta Sports plans to raise around US$500m in order to fund acquisition of yet to be announced international brand to aid its expansion plans.The stock has been doing well over the past few years and is now trading near all-time highs, post a good set of numbers for FY16. The deal scores well on our framework given the company's track record, although the deal is large (7% of existing equity base) and is worth 44 days of ADV but this is partially alleviated by the 6-8% discount.<h2>Placement</h2>…

Anta Sports plans to raise around US$500m in order to fund acquisition of yet to be announced international brand to aid its expansion plans.The stock has been doing well over the past few years and is now trading near all-time highs, post a good set of numbers for FY16. The deal scores well on our framework given the company's track record, although the deal is large (7% of existing equity base) and is worth 44 days of ADV but this is partially alleviated by the 6-8% discount.Placement…

Anta Sports - Raising for Hopefully a Good Acquisition, Great Track Record Helps

Thematic (Sector/Industry)

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in casinos effective on Jan. 1, 2019, one year later than our existing expectation. Our current forecasts across our narrow moat coverage universe already factor in a negative mid-single-digit percentage point impact to VIP play in 2018, and postponing that one year is not expected to have any significant impact to our fair value estimates. Our current fair value estimates per share are HKD 17 for <a href="https://www.smartkarma.com/entities/472" target="_blank" data-smartkarma-citation="entities:472:1">MGM China Holdings Ltd (2282 HK)</a>, HKD 36 for <a href="https://www.smartkarma.com/entities/182" target="_blank" data-smartkarma-citation="entities:182:1">Sands China Ltd (1928 HK)</a>, HKD 14 for <a href="https://www.smartkarma.com/entities/473" target="_blank" data-smartkarma-citation="entities:473:1">Wynn Macau Ltd (1128 HK)</a>, USD 17 for <a href="https://www.smartkarma.com/entities/810" target="_blank" data-smartkarma-citation="entities:810:1">Melco Crown Entertainment ADR (MPEL US)</a>, HKD 36 for <a href="https://www.smartkarma.com/entities/806" target="_blank" data-smartkarma-citation="entities:806:1">Galaxy Entertainment Group Limited (27 HK)</a>, HKD 6.6 for <a href="https://www.smartkarma.com/entities/805" target="_blank" data-smartkarma-citation="entities:805:1">SJM Holdings Ltd (880 HK)</a>, $133 for <a href="https://www.smartkarma.com/entities/606" target="_blank" data-smartkarma-citation="entities:606:1">Wynn Resorts Ltd (WYNN US)</a>, $56 for <a href="https://www.smartkarma.com/entities/807" target="_blank" data-smartkarma-citation="entities:807:1">Las Vegas Sands Corp (LVS US)</a>, and $29.50 for <a href="https://www.smartkarma.com/entities/16227" target="_blank" data-smartkarma-citation="entities:16227:1">MGM Resorts International (MGM US)</a>. We continue to see Wynn trading at an attractive margin of safety.The revised bill creates a level playing field for casino operators. We have confirmed with a Macau legislative assembly member that the revised bill outlines that all VIP smoking gaming areas will be closed and that all casinos will be able to establish smoking lounges on both VIP and mass gaming floors. Therefore, under the proposed bill newer casinos will be able to establish smoking lounges in VIP gaming areas, while the older casinos will lose the smoking premium mass and VIP smoking area. As a result, Cotai casinos as a whole stand to gain market share at the expense of Macau peninsula casinos.Analyst: Chelsea Tam

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in casinos effective on Jan. 1, 2019, one year later than our existing expectation. Our current forecasts across our narrow moat coverage universe already factor in a negative mid-single-digit percentage point impact to VIP play in 2018, and postponing that one year is not expected to have any significant impact to our fair value estimates. Our current fair value estimates per share are HKD 17 for MGM China Holdings Ltd (2282 HK), HKD 36 for Sands China Ltd (1928 HK), HKD 14 for Wynn Macau Ltd (1128 HK), USD 17 for Melco Crown Entertainment ADR (MPEL US), HKD 36 for Galaxy Entertainment Group Limited (27 HK), HKD 6.6 for SJM Holdings Ltd (880 HK), $133 for Wynn Resorts Ltd (WYNN US), $56 for Las Vegas Sands Corp (LVS US), and $29.50 for MGM Resorts International (MGM US). We continue to see Wynn trading at an attractive margin of safety.The revised bill creates a level playing field for casino operators. We have confirmed with a Macau legislative assembly member that the revised bill outlines that all VIP smoking gaming areas will be closed and that all casinos will be able to establish smoking lounges on both VIP and mass gaming floors. Therefore, under the proposed bill newer casinos will be able to establish smoking lounges in VIP gaming areas, while the older casinos will lose the smoking premium mass and VIP smoking area. As a result, Cotai casinos as a whole stand to gain market share at the expense of Macau peninsula casinos.Analyst: Chelsea Tam

Expected Macau Smoking Ban Creates a Level Playing Field for Operators

Investing in high growth Asian frontier economies., Asia Frontier Capital

Scott Osheroff

Investing in high growth Asian frontier economies.

Asia Frontier Capital

Asia Frontier Capital Ltd. is a pioneering fund management company based in Hong Kong that specializes in investing in high growth Asian frontier economies by managing the AFC Asia Frontier Fund , AFC Iraq Fund and the AFC Vietnam Fund.

The AFC Asia Frontier Fund invests in public equities of Asian frontier countries that are seeing increasing consumption due to favorable demographic trends, rising incomes and high GDP growth. The fund invests in listed equities of companies that have their principal business activities in Bangladesh, Bhutan, Cambodia, Iraq, Laos, Maldives, Mongolia, Myanmar (Burma), Nepal, Pakistan, Papua New Guinea, Sri Lanka and Vietnam. The AFC Asia Frontier Fund is positioned to take advantage of the continuing economic shifts in these countries and offers high returns combined with significant diversification opportunities. This fund is directed by the founder and CEO of Asia Frontier Capital, Thomas Hugger, who has been investing in frontier markets across Asia and Africa for more than 20 years.

The AFC Iraq Fund was launched on the 26th June 2015 and aims to achieve long-term capital appreciation for investors by capturing value and growth potential in the post conflict high-growth & resource rich Iraq market. The fund emphasises long term investment horizon to truly capture the opportunity in Iraq. The fund's investable universe consists of locally listed companies that have their principal business activities in Iraq as well as foreign listed companies that have the majority of the business in Iraq as a whole including the prosperous Kurdish Region of Iraq (KRI). The AFC Iraq Fund offers access to investments in post conflict recovery potential of Iraq, including the KRI, and/or stability in its territory. The AFC Iraq Fund is managed by Asia Frontier Capital (Iraq) Limited, Cayman Islands under the executive leadership team of Thomas Hugger (CEO & Fund Manager) and Ahmed Tabaqchali (CIO) who have more than 47 years of investment experience as well as an extensive background covering global, emerging, frontier and MENA markets.

The AFC Vietnam Fund invests exclusively in listed Vietnamese equities to capture value in growth companies with a focus on the small to medium size companies. This market segment offers a unique investment opportunity as the valuation gap between large- and small-cap stocks in Vietnam is presently much wider than in comparable neighboring markets and the valuations are significantly depressed versus their regional peers. The fund adopts a fundamental-quantitative approach and employs an in-house earnings model to identify attractive companies where we see high growth opportunities. In conjunction with targeting the maximum upside potential the portfolio has been structured to mitigate corporate government and liquidity risks. The fund invests in a diversified portfolio of 70-90 attractively valued companies to carefully control concentration risk.  This approach allows the fund to sell, or buy, positions without having a significant market impact. The fund is directed under the executive leadership of Thomas Hugger and Andreas Vogelsanger who have more than 50 years combined experience managing investments in frontier markets, Asia and around the world.

For more information about the fund, management team and investment strategy please contact us at info@asiafrontiercapital.com.

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos to visit portfolio companies and other companies on our shortlist. The photos in this article are all by AFC.

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos to visit portfolio companies and other companies on our shortlist. The photos in this article are all by AFC.

Asia Frontier Capital Travel Report: Laos

China

ANTA Sports Products Limited designs, develops, manufactures, and markets sportswear, including sports footwear and apparel for professionals and the general public.

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Anta Sports Products (2020 HK)

Field Trip to Anta's Headquarters Indicates Anta Is on the Right Track; Raising FVE by 5%

With sound positioning and pricing strategies, improved store image and products, more effort to respond to current trends, and proprietary...

Morningstar, Inc.

It's Gotta Be the Shoes: Anta's 2017 Fourth-Quarter Order Book Heats Up

Reduced trade-fair orders as a percentage of total orders, a relatively high comparison base, and less favorable seasonality did not cap Anta's...

Morningstar, Inc.

Anta Sports - Raising for Hopefully a Good Acquisition, Great Track Record Helps

Anta Sports plans to raise around US$500m in order to fund acquisition of yet to be announced international brand to aid its expansion plans.The...

Sumeet Singh

Expected Macau Smoking Ban Creates a Level Playing Field for Operators

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in...

Morningstar, Inc.

Asia Frontier Capital Travel Report: Laos

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos...

Asia Frontier Capital

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