ODM faced pressure in calendar 2Q17…。
YY’s improvement in ODM profitability will likely sustain into 2018E due to astrengthened supply chain in Vietnam.
Structural trends but corporates need the right strategy
n Recall major US exporters (Feng Tay, Eclat…etc.) indicated continuedshipment delay and weak monthly sales growth during calendar 1H17.These likely point to a weak sporting goods retail environment in the USduring summer 2017.。
FT: contrary to bearish investors, we expect FT’s India expansion and Chinaautomation to boost operating profit significantly.
13 companies beat DB/market estimates & nine missed; Hengan/H&H upgraded
Lebron James 15: likely received very positive feedback from focus groupresearch. Thanks to its new upper (improved version of the first generationFlyknit) and the new cushion system.。
(2) the 2020Tokyo Olympics, Asics’ huge potential in China and its relationship with YYmakes Asics an ideal fit for Anta’s strategy.
In relation to operations, a variety of business reorganizations have been announced by companies. There is no one-size-fits-all model and each is mapping its model based on its own SWOT. But the common themes are a leaner supply chain, de-layering and speed to market. Companies with strong balance sheets are also more active in balance sheet management.
However, innovation will be a major driver for ODMs’ calendar 2H17and 2018Earnings。
We value the sporting goods sector using DCF, as we expect investors to focuson the sector’s long-term value creation. For WACC, we follow DB’s view onRFR and ERP while assigning a beta between 0.9to 1.3and terminal growth of1-2%. Downside risks: weaker cyclical recovery, weaker innovation, sportssegmentation and e-commerce failing to drive sector growth. Upside risks(Giant): China banning bike sharing and/or allowing sports e-bikes.
Valuation and risks
Legacy products (e.g. Feng Tay’s Lebron James 14, Eclat’s legacyleggings…etc.) likely faced pressure during the past summer.。
Valuation and risks to our positive industry view
1H17’s results show that the market is trending better, with key themes, such as premiumization, health and leisure, and the wealth effect, playing an important role in sales growth. Corporates are also active in improving their business structures via a leaner supply chain or integration, especially those facing higher raw material costs. Into 2H17/2018, we believe kids/family and a rise in consumer credit will be additional themes. We like Eclat/Feng Tay (Nike supply chain theme), Moutai (strong demand + restocking), Dali (success in new products) and Samsonite (synergy and integration benefit from Tumi). Retaining Sell on Tingyi (new products yet to make an impact, given its size).
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