Excess Inventory Weighs on Anta’s Near-Term Margins, but We Retain Our Positive Long-Term Outlook

Narrow-moat Anta reported third-quarter retail sales numbers in line with our estimates, but growth was front-loaded in July and August, while sales in September came below management's expectations. Given rising travel restrictions across China, management struck a cautious tone for the fourth quarter and quarters beyond. Moreover, inventory levels remain high, so Anta announced that it would need to discount merchandise to clear inventory, meaning margins will be negatively affected. We lower Anta's fair value estimate to HKD 141 per share from HKD 159 to reflect the recent depreciation of the Chinese yuan against the Hong Kong dollar. Although shares are trading at a discount to our fair value estimate, we believe continued profitability concerns could create a more attractive entry point. We recommend investors wait until the upcoming promotional environment to be fully priced before buying Anta.