Leona Tan Siew Hoon graduated from Indiana University Bloomington, US, majored in Finance and International Business. She started her career as an analyst in a financial-data company in the US. Upon her return to Singapore, she spent a few years in corporate finance before dedicating herself to working as an equity analyst at a brokerage firm in 2004. She joined a large Singaporean asset manager in 2007 and was involved in various roles such as portfolio manager for global and China-India equities funds. She joined Econopolis Singapore Pte Ltd in April 2017 and is responsible for stock selection in the emerging markets funds.
Anta Sports is a great example of the type of Global Challengers we are looking for. The Anta brand was established in 1991. The company’s strategy is to be a competitive global player in terms of sportswear and apparel. They are already known as ‘China’s Nike’. Thanks to the acquisition of Amer Sports, a Finish sportswear conglomerate having brands such as Wilson, Salomon, Arc'Teryx, PeakPerformance, Atomic, they are now also expanding globally.
Anta (http://en.anta.com) is China’s strongest home-grown sportswear brand and has been growing its market share in recent years. It now accounts for just below 10% of branded sportswear sales in China, putting it just behind foreign favourites Nike and Adidas. Anta’s success can be attributed to the strength of the company’s distribution channel and supply chain management, its logistics efficiency and effective brand building. Another attribute to Anta’s success has been its investments in the R&D of technology (currently over 2.5% of revenue is committed to R&D activities). Furthermore, Anta Sports operates a multi-brand model (which includes brands like Fila and Descente), and recently acquired Finland’s Amer Sports (https://www.amersports.com) to further bolster their portfolio of offerings and continue their strategy of becoming a true Global Challenger.
Anta provides consumers with value-for-money and professional sportswear across a diverse range of categories, from running, cross-training, basketball and soccer to professional and niche sports. The China market is characterized by a growing appetite for “athleisure” fashion, so the demand for “functional”, “differentiated” and “premium” sportswear products is becoming stronger. Anta’s brand equity and favourability experienced an uplift from its marketing campaigns utilizing both online and offline channels. The Fila brand is somewhat more vulnerable to changes in fashion, but still Anta should be one of the main beneficiaries of increasing sports adoption and rising spending on sportswear in China. It has a strong management team with best-in-class execution capabilities.
As a reminder, Amer Sports group includes leading sports brands such as Salomon, Arc’teryx, Wilson, Atomic, Precor and Suunto. Around 60% of group sales are generated by the Outdoor division (36% Apparel and Footwear, 15% Winter Sports Equipment, 5% cycling and 5% sports instruments), 24% by the Ball Sports division and 14% by Fitness. Since 2010, the strategy of Amer Sports has been to consistently expand its soft goods division -leveraging on its strong brands heritage- to reduce seasonality and cyclicality, accelerate growth and improve asset efficiency.
In terms of potential synergies, this acquisition would provide Anta with access to very well-known brands with a strong heritage, a solid foothold into the US and Europe and diversification into equipment. Finally, this deal could leave Anta at a strong competitive position in the run into the 2022 Winter Olympics in Beijing. At the same time, Anta would potentially be able to accelerate the expansion of Amer Sports into China, a key priority area for the Group where sales are still relatively small. We would also see potential synergies on sourcing, notably for the apparel and footwear segments. On the other hand, this acquisition also adds higher execution risk with Anta's existing vastly different brands and complex operations, so this needs close monitoring.
In conclusion, Anta Sports remains the largest domestic sportswear company in China, and has recently also embarked on a global expansion strategy. Interestingly, its multi-brand strategy that taps a wide customer base and the same goes for its multi-channel approach (integrating online and offline). It is one of the few China consumer discretionary names that continues to offer high earnings growth, riding the structural long-term trend of rising sports participation in China and global markets.
ABOUT GLOBAL CHALLENGERS
A revolution in global business is under way. Companies based in emerging markets, boasting ambitious leaders, appealing products or services and state-of-the-art facilities and systems are expanding overseas and transforming industries and markets across the globe. The few emerging markets companies that have captured media attention only represent a small fraction of a larger phenomenon of the many emerging markets companies that are actively expanding beyond their domestic markets, or are planning to do so. As corporate governance has always been a key risk of emerging market investing, Econopolis opened up a Singapore research hub in 2013 to increase proximity to the companies we invest in and observe and listen to the signals you cannot get by just doing desktop research.
Our experienced investment team applies a disciplined, bottom-up fundamental investment approach. We believe in a ‘boots on the ground approach’, visiting and talking to companies. A high-conviction investment approach translates into a willingness to take active positions regardless of benchmarks. This results in a select number of strong franchises with clear competitive advantages and trustworthy management.
The Global Challengers we are looking for, are set to grow into global powerhouses with credible aspirations to build global footprints. The capabilities of these Global Challengers go beyond mere cost advantages. They have been building new capabilities, such as manufacturing higher-quality products, harnessing their cash resources, and investing in R&D. These Global Challengers can be divided into three groups:
- early movers (that started to globalise early on);
- fast followers (making rapid progress); and
- up-and-comers (whose ambitions have until recently been more regional than global).
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