ANTA SPORTS-R's net profit increased by nearly 40%, paving the way for the re-listing of its subsidiary brand Amer with an 11 billion devaluation?

Multi-brand mix led ANTA SPORTS(2020.HK) to recover quickly in 1H20 at a pace ahead of the industry. On August 22, ANTA SPORTS announced its 2023 interim results. During the reporting period, revenue reached 29.65 billion yuan, up 14.2 percent year-on-year. Net profit (excluding the profit and loss of the joint venture company) recorded 5.26 billion yuan, up 39.8 percent year-on-year. Although the revenue growth rate of ANTA's SPORTS-R main brands dropped to only single-digit 6.1 per cent during the reporting period, FILA, the "cash cow" that once stagnated last year, resumed growth, and the revenue of other brands (including Disant, Kolon Sports, etc.) with higher gross profit margin increased by 77.6 per cent to 3.246 billion yuan year on year. The rapid growth of "other brands" except ANTA SPORTS-R and FILA has driven ANTA's net interest rate in the first half of the SPORTS-R to a new high since the mid -2021 report. The net interest rate of this part of the business is as high as 30.3, which is about 9.3 percentage points higher than ANTA's SPORTS-R main brands, just like another "cash cow. The day after the financial report was released, ANTA SPORTS-R shares opened higher, rising nearly 12 per cent before midday to close at HK $84.5 per share, up 8.82 per cent. ANTA SPORTS-R joint venture company AS Holding(Amer Sports is its subsidiary), which has attracted much attention from the outside world and owns Archaeopteryx brand, confirmed goodwill and trademark impairment of about 1.131 billion yuan in the first half of this year for Peak Performance business, another outdoor brand, which directly affected AS's Holding to bring losses of 0.516 billion yuan to ANTA SPORTS-R. You know, last year Amer Sports made its first profit since it was acquired in 2019. Some market participants told the trade wind (ID:TradeWind01) that goodwill impairments are usually associated with fundamentals and market valuations, and ANTA SPORTS-R the high probability of this action is to re-clarify the asset valuation. Combined with Amer Sports' balance sheet, this financial move may also be one of the prelude signals to a separate listing for Amer Sports. Trade wind (ID:TradeWind01) asked ANTA SPORTS-R relevant people about this, and the other party only said that there was no more information to provide. ## More direct operations and faster recovery Channel reforms have put ANTA SPORTS-R under greater operational pressure than its peers in the past, but have also helped it recover faster in the first half of this year-with net revenue increasing by 14.2 per cent and 39.8 per cent respectively. In this round of recovery, ANTA SPORTS-R has not yet felt the consumption "downgrade". Brands such as FILA, which have more expensive average prices and contribute more profits, have contributed to better growth performance for ANTA SPORTS-R. During the reporting period, the FILA brand contributed 12.23 billion yuan, up 13.5 percent year-on-year, not only out of last year's negative growth, net profit even exceeded the same period in 2021, reaching 3.638 billion yuan, up 50 percent year-on-year, up 15.53 percent from 21 years. In the first half of the year, the revenue of "other brands" represented by Desant and Kolon Sports increased by 77.6 percent to 3.246 billion yuan, and the net interest rate was 30.3 percent higher than that of the main brands SPORTS-R FILA and ANTA, up 8.7 percentage points from the same period last year. ANTA SPORTS-R attributed to Di Sant and Coron sports business led, the performance is better than the internal set target. The main brand ANTA SPORTS-R contributed revenue of 14.17 billion yuan, up 6.1 percent year-on-year, a sharp slowdown from 26.3 percent in the same period last year. ANTA SPORTS-R channel transformation of the main brand continues. By channel, the DTC channel of ANTA's SPORTS-R main brand contributed revenue of 8.085 billion yuan, up 21.8 percent year-on-year; the e-commerce channel grew 1.4 percent year-on-year to 4.635 billion yuan; and the traditional wholesale channel declined for three consecutive years since 2020, down 32.6 percent to 1.45 billion percent year-on-year, equivalent to only 31.81 percent of the same period in 2020. In the past three years, when the consumer environment is sluggish, the DTC channel has also brought greater operational pressure to the ANTA SPORTS-R. Inventory turnover days surged from 119.99 days in 2019 to 158.46 days in 2020, and in 2022, ANTA SPORTS-R inventory turnover days of 157.18 days. However, when the consumer environment recovers, ANTA's SPORTS-R direct stores, e-commerce and other DTC channels will also drive faster growth and inventory pressure will be eased more quickly. In the first half of this year, the average inventory turnover days of ANTA SPORTS-R decreased by 21 days to 124 days year-on-year, and inventory decreased by 20.81 to 6.487 billion yuan year-on-year. In contrast, Li Ning's inventory turnover days increased during the same period, with nearly half of the latter's revenue contributed by wholesale channels and ANTA's SPORTS-R e-commerce channels accounting for about five percentage points more, reaching 30.8 percent. ## Paving for Amer's Re-listing? In the first half of this year, AS Holding, a joint venture company SPORTS-R by ANTA, recognized goodwill and trademark impairment of about 1.131 billion yuan in Peak Performance business, a subsidiary of Amer Sports, which resulted in AS Holding bringing losses of 0.516 billion yuan to ANTA SPORTS-R, while the former just turned losses into profits in 2022. In the same period last year, AS Holding recorded a goodwill impairment of only $0.269 billion for Peak Performance in the previous year. In the financial report, ANTA SPORTS-R explained the impairment as "a significant increase in the discount rate under the impairment test and an adjustment in brand development priorities". In ANTA's SPORTS-R "five billion euro" development plan, Amer Sports' Archaeopteryx, Salomon and Welson were included respectively, excluding the devalued Peak Performance. Some market participants have analyzed the trade wind (ID:TradeWind01) and there are two possibilities for the above goodwill impairment: one is to prepare for the listing of Peak Performance. Earlier, in 2020 and 2022, Amer sold its fitness equipment brand Precor (must be confirmed) and sports watch brand Suunto (songtuo) respectively, reducing Amer Sports' 7 brands to 5. The second is to prepare for the listing of Amer Sports and re-clarify the valuation of assets. The person's analysis said that the impact of goodwill impairment is simply to enlarge the company's losses and reduce net assets. Under the condition that the net profit performance is lower due to impairment, it is expected to show a higher growth trend in the future. In the first half of this year, AMER SPORTS revenue increased 37.2 percent year-on-year to $13.27 billion, and EBITDA (on a consolidated basis) reached $1.779 billion, its best half-year performance since privatization in 2019. At the end of last year, according to Bloomberg, citing people familiar with the matter, ANTA SPORTS-R is considering launching Amer Sports' IPO as early as 2023, with a plan to raise $1 billion. At that time, ANTA SPORTS-R the relevant person's response is "no comment". But there are indications that the ANTA SPORTS-R is working in this direction. In January this year, ANTA SPORTS-R to adjust its organizational structure. Ding Shizhong "took a step back" from his post as CEO and became chairman of the board of directors of Amafen. Zheng Jie, who once led the acquisition of FILA, stepped down as chief executive officer of Amafen Sports. The outside world generally interpreted this series of personnel changes as Amer Sports is preparing for the impact of IPO. In terms of urgency, Amer Sports does have an incentive to go public and raise money to pay off its debt. As of the first half of this year, AS Holding's current liabilities increased by 10 billion yuan to 19.161 billion yuan, while non-current liabilities reached 19.381 billion yuan, and its current assets were only 15.116 billion yuan, which was not enough to cover current liabilities. ANTA SPORTS-R is also doing more to repay the leverage it added to its acquisition of Amer Sports. In April this year, ANTA SPORTS-R raised HK $11.802 billion in a rights issue in order to repay A financing, which had been repaid by the end of the reporting period. However, another 0.9 billion euros (about 7 billion RMB) worth of B financing will also expire this year, while ANTA SPORTS-R has 6.381 billion yuan left from the first half of the rights issue.