It all started with Chinese netizens looking for someone to blame for some of the national teams losing at the 2020 Tokyo Olympics. The source of their ire? Foreign sponsors on the jerseys of the losing teams. Internet communities pointed to the Adidas (ADS) logo on the uniform of the women's volleyball team as being a cause of the team’s losing streak, and claimed that most medalists wore Chinese brands.
Subsequently, domestic names ANTA Sports Products (02020) and Li Ning (02331) became among the top searches on Tmall, an e-commerce platform owned by Alibaba (09988). Some searches may have even translated into sales. Since the Olympic Games started on July 23, Anta’s sales volume on Tmall hit RMB 41.1 million and Li Ning’s was RMB 35.2 million, double the 2019 records over the same period.
Ivan Su, senior equity analyst at Morningstar, is skeptical about whether a jersey brand is indeed the reason for the athletes to have lost their mojo. Instead, he suggests that investors dig deeper into the reasons behind their support over the country’s own labels, which he finds are the engines driving the sportswear names.
“The preference for homegrown labels was fueled by the Xinjiang cotton incident earlier this year and the Olympic Games is a continuation of that as consumers find reasons to embrace such brands,” he says, adding that Chinese consumers are showing confidence in domestic brands, which has played a large part in forming a new spending pattern and is very favorable to brands like Li Ning and Anta.
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Under his coverage, Su prefers Anta’s strategy in capitalizing on consumer preference and expanding via mergers and acquisitions. In Su’s opinion, polishing its core brand image during the Olympic Games is on Anta’s agenda.
“The Anta brand is the exclusive apparel sponsor for the Chinese Olympic Committee. It seems to us that this relationship was underutilized in the past, but now Anta is finally developing a more holistic marketing strategy using the image of Chinese Olympic teams.”
Meanwhile, Anta’s rich brand portfolio, enhanced by its merger and acquisition strategy, has proven successful to better cover a wide spectrum of consumers. The group’s core Anta brand started as a reasonable alternative to expensive international brands such as Nike (NKE) and Adidas in lower-tier Chinese cities. Su highlights that Anta’s management has stayed on top of the changing demographics of China.
“While a portion of its customers in lower-tier cities will eventually trade up to these costlier brands, economic growth and improving affordability in China will also allow Anta to benefit as others trade up to its products from even lower-end domestic alternatives.”
In 2019, Anta has added 10-odd brands to its umbrella through the acquisition of Finland-based Amer Sports, which is known as the maker of Wilson tennis rackets, Arc’teryx outdoor gear and Solomon hiking shoes.
“Anta shows a strong track record in breaking into the high-end market segment by introducing lesser-known high-end sports brands from overseas into China. This is the success of Anta using their deep knowledge of Chinese consumers’ tastes.” According to Su, the group rolls out the outdoor clothing in sharper colors and adjusts the sizing of skateboarding gear to cater to the mainland consumers.
Shares in Anta closed yesterday at HK$ 174.0, which implies a 20% upside to reach Morningstar’s fair value estimate of HK$210.0. The narrow-moat company has an exemplary rating in capital allocation, which Su emphasizes as a centerpiece for Anta to execute its growth plans.
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