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Exercising and staying healthy are the new buzzwords these days. With more healthy food options being introduced, the whole world is shifting towards healthier diets and better fitness levels. Sporting goods companies are also benefitting from this trend as they sell products that appeal to sports-conscious folk.
Sporting goods companies are defined as those that sell both sports footwear and apparel, as well as accessories relating to sports. The two largest ones for the Chinese market are Li Ning Co Ltd (SEHK: 2331) and ANTA Sports Products Ltd (SEHK: 2020), with market capitalisations of HK$57 billion (US$7.32 billion) and HK$198 billion respectively.
Investors may be wondering which of these companies makes the better investment if they want to tap into the strong growth of the sportswear sector in the world’s second-largest economy.
Let’s take a look at three aspects of each company in order to determine this.
First, I took a look at each company’s year-on-year revenue growth. The growth in revenue is an indication of the company’s business development efforts and brand recognition. I used the FY 2018’s year-on-year growth as well as the H1 2019 in order to form a better picture.
ANTA has clearly knocked the lights out with a 44% year-on-year growth for FY 2018 and a 40.3% year-on-year growth for H1 2019, beating out Li Ning’s 18.4% and 32.7% respectively. The good news is that both companies are successfully growing their top-line, but ANTA has the higher growth rate of the two.
Winner: ANTA Sports
Next, I compared the gross margin for the two companies. I also used both FY 2018 and H1 2019 in order to get a sense of where gross margins are heading, while also having two points for comparison rather than just one.
While both Li Ning and ANTA Sports boast impressive gross margins above 40%, the latter’s gross margin has remained consistently higher than Li Ning’s, at above 50%. It can also be clearly seen that while Li Ning has managed to improve gross margin from 48.1% to 49.7%, this is “only” a 1.6 percentage point improvement.
ANTA, on the other hand, has managed to improve its gross margin by an impressive 3.5 percentage points from 52.6% to 56.1%. This is a testament to the strength of its brand and also its pricing power.
Winner: ANTA Sports
Finally, I studied the dividend yield for each business. ANTA has been consistently paying dividends every year for the past five years, though the amounts have been fluctuating and are not rising in a steady trend. Li Ning, however, has only just recently declared its first dividend in 7 years (the last time a dividend was declared was in FY 2011).
Looking at the dividend yield in the table above, it’s clear that ANTA has a slightly better dividend yield at 1.1% as compared to Li Ning at 0.4%.
Both dividend yields are on the low side because the companies are growing at double-digit rates, but ANTA has the advantage of having a more consistent dividend payment history compared to Li Ning. This will provide investors with peace of mind.
Winner: ANTA Sports
ANTA Sports is the clear winner here, with a very strong year-on-year revenue growth rate, superior gross margins and also a consistent dividend policy.
Investors may, however, wish to check each company’s valuations as well before they decide to purchase shares, as this may have a bearing on their future returns.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Royston Yang doesn’t own shares in any companies mentioned.