China sportswear:Robust必威： down jacket demand
Robust down jacket demand could boost sportswear retail sales in 4Q17
Buy FT & Eclat into sustainable upcycle, Anta for strong retail sales; avoid Giant
Upgrading CR Gas, also prefer BEHL and ENN
Energy drink: the energetic driver for soft drinks over the next three years.
Conclusion: we conducted more channel checks. Nike’s upcoming results mayreveal more innovation, which should be more important than the earningsitself for our ODM coverage.。
We were previously more cautious on Anta and Li Ning’s December retail salesgrowth, due to a high base (driven by early Chinese New Year). However,recent channel checks suggest December momentum could be stronger thanour previous anticipation, due to the robust demand for down jackets.What is driving the growth?
The upcoming results could be generally positive for share prices. We believeUS-exporting ODMs have exited painful adjustments & should enter asustainable upcycle, with multiple structural drivers. We continue torecommend buying FT (Feng Tay) and Eclat into the results. We view Anta as abetter proxy to enjoy accelerating consumption in China vs. Li Ning and PouSheng. M&A analysis suggests Asics could be an ideal candidate for Anta. Weexpect SZ (Shenzhou) to receive compensation from Nike before Flyknitcapacity utilization recovers in 2H18, and disagree with the bears’ arguments.For Giant, its challenge may extend beyond revenue to utilization and margins.
Sustainable volume growth, manageable margin risks and improving free cashflows will support the gas sector’s growth story over 2017-19. Looking into2018, valuations are not demanding at an average 12x P/E. Specifically, wenow upgrade CR Gas, a high-quality laggard, to Buy, as we believe the marketunderestimates its coal-to-gas potential, is overly concerned about margin risksand ignores its best-among-peers balance sheet and FCFs. At currentvaluations, we also prefer BEHL (deeply discounted value play) and ENN (keycoal-to-gas beneficiary with cheap valuation).
We expect the energy drinks sector to grow by 16% over the next three years,driven by growing consumer demand and increasing penetration by the mainplayers. In our view, Dali Foods, which has a 9% market share, is the bestproxy to invest in the rising trends. China Foods should also benefit through itscooperation with global lead brand Monster Beverage. We raise Dali's targetprice by 13% to HK$6.5, reiterating Buy. We maintain Buy on China Foods.
Nike’s F1Q18(Jun, Jul and Aug) earnings due 9/27morning HKT。
Upcoming results: in general positive, ODMs will likely outperform
Sustainable volume growth story supported by coal-to-gas conversions
Increasing demand on changing consumer lifestyles.
Please kindly see below report by DB Nike analyst Paul Trussell (dated 2017Sep-13):