China Sportswear (Part 2: Anta)

Industry-leading brand portfolio and execution

In Part 1, we discussed why China’s homegrown sportswear brands are interesting to look at. Now, we will go deeper into the individual names: Anta and Li-Ning.

If you are new to the sector, you might wonder what the differences are between the two companies. Actually, quite a bit! As you will soon see, Anta is decidedly the higher quality name, especially when it comes to management. In terms of valuation, Li-Ning’s share price is more beaten down, but it’s also dealing with more execution issues and a growth slowdown.

In this piece, I aim to cover both the business fundamentals and the governance-related issues that are important for investors to consider. Included will be my rebuttals to the short-seller reports which have targeted Anta in the past.

Earlier this month, I travelled to Beijing and had the opportunity to conduct some store visits. Through this, I also aim to provide an authentic and up-to-date analysis on these names.

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Anta Sports

Anta was established by Ding Shizhong in the Fujian Province of Southern China in 1991. Initially, from 1991 to 1997, the company was primarily involved in contract manufacturing, before launching its own brand in 1997.

Anta was a latecomer compared to Li-Ning, and spent its early years overshadowed by its more popular rival. However, Anta’s ascent to the top has been remarkable, attributed to the ingenious capital allocation and execution by the management team led by Ding.

Ding and family insiders own ~62% of the Hong Kong-listed Anta Sports, via holding company Anta International Group Holdings and other family vehicles. The public float is ~38% of shares outstanding.

As an aside, “Anta” is derived from the phrase 安心创业，踏实做人 which roughly translates to “embark on steadfast entrepreneurism while living life with integrity”.

The company’s main brands are shown below.

Here’s a quick description:

• Anta: mass market sports apparel and footwear

• Fila (China): Italian brand of premium sports fashion (since 2009)

• Descente (China): Japanese brand of ski and functional sportswear (since 2016, 54% ownership of China JV with partners Descente 40% and Itochu 6%)

• Kolon Sports (China): Korean brand of mountaineering and camping wear (since 2017, 50% ownership of China JV with partner Kolon Sports)

• Helsinki-headquartered Amer Sports which owns Arc’teryx, Salomon, Wilson, and other brands (acquired in 2019 and IPO’ed in February 2024). Post-IPO, Anta owns ~44% of Amer Sports which is treated as an equity method affiliate.

Revenue breakdown (2023 H1):

• By brand: Anta (48%), Fila (41%), all other brands (11% mainly Descente) - Note: Amer Sports is not included, as it is not part of consolidated revenue

• By category: Footwear (42%), Apparel (55%), accessories (3%)

• By channel: Direct-to-consumer physical retail (57%), e-commerce (33%), wholesale (10%)

Anta has focused on creating a multi-brand portfolio. They have positioned the Anta brand for the core mass market, while using acquisitions to expand into the premium segments. The playbook involves acquiring international brands and introducing them to the Chinese market, leveraging Anta's superior execution capabilities.

Anta’s founder Ding believes that high-end fashion trends typically originate in developed markets, such as the United States or Japan, before gaining popularity in developing markets like China. He argues that global acceptance of a brand often requires initial success in these developed markets, which explains Anta's strategy of acquiring established brands, such as Fila and Arc’teryx, and bringing them to China.

As an aside, this stands in contrast to Li-Ning’s premiumization strategy, which has emphasized developing homegrown premium brands, as you will read about later on.

When it comes to acquisitions, Anta has an outstanding track record. The company’s track records with growing Fila, Descente, Kolon, and Amer in the Chinese market really speaks for themselves. In my view, the repeated successes strongly suggest that there is an effective management system in place designed to nurture and expand premium brands.

Let’s take a closer look.