Investment summary:
Industry Overview: China's sportswear achieved a high growth in 2021 and still has a comparative advantage over other clothing categories. Combing the performance of sports industry chain company in 2021, we summarize two development characteristics. First, the brand pattern is short, the proportion of domestic brands has increased significantly, and the overall operation level of domestic sports companies has also improved. Second, although the performance of OEM is slightly differentiated, the share of leading OEM enterprises in the industry continues to increase, and the trend of selecting suppliers for international brands remains unchanged. We are still optimistic about the long-term prosperity of sports categories.
Brand side: Chinese companies accelerate to increase their share and pay more attention to operation quality
Benefiting from the event catalysis and the improvement of the product power of Chinese companies, domestic brands have maintained rapid growth for 21 years and their share has increased significantly. In 2021, the annual revenue of Li Ning and Anta increased by 56.6% and 38.8%, that of Tebu increased by 23% and that of 361 degrees increased by 16%. The growth rate in 2021 is basically the fastest in recent five years, indicating the accelerated increase of the share of domestic brands. In terms of growth rhythm, because there was event catalysis in the first half of the year and the pressure of high base in the second half of the year, it showed a rhythm of high before and low after. The growth of domestic brand income mainly comes from: 1) external factors, events such as Xinjiang cotton have increased the national preference for domestic brands. The 21st summer Olympic Games and the 22nd Winter Olympic Games have stimulated national sports enthusiasm and helped improve the image of domestic brands. 2) In terms of internal factors, domestic brands have accumulated independent technology in recent years and achieved outstanding results. Considering that international brands, especially Nike and Adidas, are still declining in Greater China by the latest fiscal quarter, the share of international brands has increased significantly.
Domestic sports companies have good performance on the profit side, and the operation quality has become the focus of each company. In 2021, the net profits of Li Ning, Anta, Tebu and 361du increased by 136%, 49.6%, 77% and 45% respectively. The profit growth rate is better than the income side, and the main factor is the scale effect of operating leverage brought by the high income growth. In particular, Li Ning's net interest rate jumped to 17.8%, the best level in history, and the net interest rate of Tebu also returned to the good level before the epidemic. From the perspective of growth structure, the inventory and discount of each company are at a high level, indicating the continuous upward operation level of domestic companies. DTC model and muscle enterprises show that companies not only pursue growth goals, but also pay more attention to operation quality.
OEM end: the leading share continues to improve, the performance is differentiated, and the future orders are optimistic
Under the impact of the epidemic, the income and performance of the OEM end are differentiated Huali Industrial Group Company Limited(300979) has the best revenue growth performance, with the revenue end increasing by 25.4% in 21 years, which is much better than its competitors Yuyuan and Fengtai; The income of Shenzhou International still increased by 3.54% under the pressure, and performed well in the field of garment OEM. The orders and production of sportswear OEM enterprises are under pressure from two aspects: first, international brands generally perform poorly in Greater China, affecting the overall orders; second, the epidemic in East and South Asia is serious, and the production and development of factories are affected by the epidemic control. The epidemic has also accelerated the integration of suppliers. Under the comprehensive impact, there are differences in orders and production status among companies.
Under various pressures, the performance is generally under pressure, and Huali is the only one. In 2021, OEM enterprises will bear various pressures on the profit side: 1) insufficient operating rate under the epidemic situation and great amortization pressure. 2) The price of raw materials increased, including cotton, chemical fiber and other bulk raw materials. 3) The appreciation of RMB has put pressure on gross profit margin and exchange rate. In terms of performance, Huali and Fengtai have strong performance toughness, and Huali even showed a rise in profit margin against the trend.
Under the challenge, most international sports brands have strong recent revenue and performance. In 2021, international sports brands will face various challenges, and the major international sports brands have still achieved good performance, especially the resilience of the revenue side. First, international brands still have profound accumulation in brand strength and maturity of product matrix. Second, from the market side, outdoor sports in Europe and America continue to boom, and professional sports events and activities are normalized, which has brought strong demand for sports shoes and clothing. We believe that international sports brands have shown good resilience in the epidemic, which provides a guarantee for the prosperity of OEM.
Investment suggestions:
We continue to be optimistic about the logic of increasing the share of domestic brands. Domestic brands have significantly improved their product professionalism and brand image in recent years. At the same time, there is still room for improvement in terms of profit margin and operation level. In contrast to the profit margin of international brands in Greater China and the robustness of international brands over the years, domestic brands still have room for optimization. On the OEM side, we believe that the disturbance of the epidemic will eventually weaken and the importance of the factory's own capacity will be highlighted. Recommended: Huali Industrial Group Company Limited(300979) , Shenzhou International, Li Ning, Anta sports.
Risk tip: macroeconomic fluctuations affect downstream demand, raw material costs fluctuate sharply, enterprise capital expenditure is lower than expected, and industry competition intensifies.
