Investment Summary

We highlight that 1)1Q18 operation results beat our expectation while 2Q18 growth may slow down given higher base; 2) FILA biz focuses on expanding store coverage, launching new sub-brand catering for younger generation and improving portfolio mix; 3) For new brands, the company continues to adjust store structure and expect the loss to narrow down looking forward. We increase EPS estimates thus raise target price to HKD47.3, even given a lower target PE 23.3x (roughly par to 2-y historical average minus 0.5x SD) vs. previous 26x to factor into recent market volatility. (Closing price at 13 July 2018)

Business Overview

18Q1 results beat expectation. Anta biz realized +20%~25% YoY growth while non- Anta biz achieve +80%~85% growth, which is attributable to the fast development of FILA and Anta kids as well as relatively lower base in 17Q1. Mgt commented that the current inventory level is healthy but flagged 2Q18 growth may be lower than 1Q18.

FILA biz continues to serve as a key driver. FILA now makes up 25% of total revenue and maintain higher than 80% growth rate. We highlight FILA`s great momentum at least in short term considering 1) The improving store coverage and penetration (FY17 1086 stores; FY18E 1300-1400 stores). 2) To cater for current fashion trend, the company launches FILA Fusion (a sub-brand of FILA) which targets from teens to 30s. FILA Fusion is expected to grasp more young customers and cultivate new drivers for FILA. 3) Continuously improving portfolio mix. Now majority of FILA products is apparel while more footwear will be added to improve product structure.