Global sporting goods industry

193 Pages·2015·9.19 MB·English

Mon, 07 Dec 2015

Equity Research Global sporting goods industry

Sporting goods/ China

Walter Woo How technology changes the way we sport
[phone]
[email protected]
 Initiate on the Sports sector with BUYs on international brands’ play

and leading domestic brands

 1) technological innovations putting more fun into sports 2) expanding
Sector Report market with Athleisure clothing 3) big brands may not get bigger, but

there will be winners and 4) more outsourcing to Asia

 Top picks are Pou Sheng (3813 HK), Kingmaker (1170 HK), Xtep (1368
HK), Anta (2020 HK)
Initiate BUY in Sporting goods – We estimated a 11.5% CAGR for Chinese
sporting good sales in 2013-2025, based on the RMB 5 trillion sports industry size.
However, we are more optimistic, and expect a 14.5% CAGR, because, apart
from active government pushes and rising income levels, there are 2 other
critical factors: 1) technological innovations like social media, smartphones,
Apps and wearables to re-invent our sports experience, 2) overwhelming
trend towards professionalism and Athleisure.
We do not agree big will get bigger, but there will be winners- We have seen
Li Ning losing its crown to Anta in China, and Under Armour surpassing Adidas in
terms of US sales, we identified 6 keys to success. Nike, Under Armour, Anta,
Asics, New Balance, Xtep stand out in our scorecard. But after factoring in
risks/rewards and using our OP-Baidu sports activity index, our top pick is
Xtep (1368 HK) thanks to its focus on running, women and increasing
functionality; also prefer Anta (2020 HK), 361 Degrees (1361 HK), and Peak
(1968 HK).
Follow the winners, buy their distributors and suppliers - Winning brands will
sell more in China, and move their productions to places with lower labour costs
and tariffs (TPPs, and other FTAs), Our top pick is Pou Sheng (3813 HK), the
2nd largest distributor for Nike/Adidas in China (also distributing for Under
Armour/ Skechers) to gain more shares, and Kingmarker (1170HK), a leading
footwear ODM with over 60% production in Vietnam, having New Balance as their
largest client, is expected to have 21% capacity CAGR in F3/16-18. We also like
Best Pacific (2111 HK) due to promising growth of Athleisure items.

Exhibit 1: Recommendations summary
Company Stock code Rating Target Price Closed Price Upside
Pou sheng 3813 HK BUY HK$2.02 HK$1.67 21%
Kingmaker 1170 HK BUY HK$3.05 HK$2.12 44%
Best Pacific 2111 HK BUY HK$4.98 HK$3.40 46%
Xtep 1368 HK BUY HK$5.78 HK$4.49 29%
Anta 2020 HK BUY HK$26.83 HK$23.30 15%
361 Degrees 1361 HK BUY HK$3.91 HK$3.04 29%
Peak 1968 HK BUY HK$2.88 HK$2.38 21%
Li Ning 2331 HK HOLD HK$4.12 HK$4.16 -1%
closed price as at 4/12/2015
Source: Bloomberg, OP Research,
Mon, 07 Dec 2015

Global sporting goods industry

Table of Contents
Table of Contents ............................................................................................................................................................... 2
Key companies to reap gains ............................................................................................................................................ 3
Active government pushes ................................................................................................................................................ 7
Policy at a glance via Charts ............................................................................................................................................. 8
1. A new motor for economic growth .......................................................................................................................... 11
2. Increase healthiness of the population ................................................................................................................... 13
3. Raise happiness of the population ......................................................................................................................... 16
Rising income levels ........................................................................................................................................................ 17
1. More provinces will join the party ........................................................................................................................... 18
2. Raising health and fitness awareness .................................................................................................................... 19
3. Frequency of purchases will increase .................................................................................................................... 21
Case studies: Singapore and Japan ................................................................................................................................ 22
Technological innovations re-invent our sports experience (the rise of social media, Apps and wearables) .................. 23
1. The showing off (on social media) effects .............................................................................................................. 24
2. Apps have re-invented some sports ....................................................................................................................... 27
3. Wearables also growing rapidly .............................................................................................................................. 29
Overwhelming trend of being professionals and Athleisure ............................................................................................ 30
1. Go Pro, the power of functional wear ..................................................................................................................... 32
2. Go Trendy, break into the woman’s heart ............................................................................................................... 36
3. Huge demand ahead from the ladies ..................................................................................................................... 40
Big may not get bigger, it depends on strategy ............................................................................................................... 42
1. Six keys to branding success ................................................................................................................................. 44
2. What is hot and what is not? OP- Baidu sports activity index ................................................................................ 56
3. Brands exposure to each sports ............................................................................................................................. 59
Follow the winners, buy their distributors and suppliers .................................................................................................. 61
1. Outline the big names’ guidance ............................................................................................................................ 62
2. Nike, Adidas to gain shares in China ...................................................................................................................... 64
3. Understand the industry and its supply chain ......................................................................................................... 65
4. Outsourcing: Moving out of China to Asia .............................................................................................................. 66
5. TPP and other FTAs ............................................................................................................................................... 71
Kingmaker (1170 HK) – hidden gem in the footwear industry, run with style .................................................................. 75
Financial Summary – Kingmaker (1170 HK) ................................................................................................................... 94
Best Pacific (2111 HK) –Functional fabric a likely winner ................................................................................................ 97
Financial Summary – Best Pacific (2111 HK) ................................................................................................................ 119
Xtep (1368 HK) – Re-rating in sight, run ....................................................................................................................... 122
Financial Summary – XTEP INT’L (1368 HK) ................................................................................................................ 132
Anta Sports (2020 HK) – Sustainable growth ................................................................................................................ 135
Financial Summary – ANTA SPORTS (2020 HK) .......................................................................................................... 145
Peak Sports (1968 HK) – Attractive valuation ............................................................................................................... 148
Financial Summary – Peak Sport (1968 HK) ................................................................................................................. 153
361 Degrees (1361 HK)–Well balanced portfolio .......................................................................................................... 156
Financial Summary – 361 Degrees International (1361 HK) ......................................................................................... 165
Li Ning (2331 HK) – Back on track but still rich in value ................................................................................................ 168
Financial Summary – Li Ning (2331 HK) ....................................................................................................................... 172
Pou Sheng (3813 HK) – Best proxy for international brands in China .......................................................................... 175
Financial Summary – Pou Sheng (3813 HK) ................................................................................................................. 189

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Key companies to reap gains
Top international brand plays – distributor in China and ODMs in
South East Asia
Top picks: Pou Sheng (3813 HK), Kingmaker (1170 HK), Best Pacific
(2111 HK)
Sporting goods sales to grow by We forecast a 14.5% sales CAGR for sports good in 2014-2025
14.5% CAGR in 2014-25 because Based on the RMB 5 trillion industry gross value in 2025 target by the Central
new technologies like social Government in the White Paper issued by State Council in October 2014, we
media and Apps had brought us
have derived a sporting goods sales CAGR of 11.3% for the period 2014-25,
new excitements that we have
backed by increasing participation in sports and rising disposable incomes. We
never experience before and
are even more optimistic because a year later, in October 2015, more than 26
motivations to have sports
local governments had announced an aggregate gross industry value of over 7
trillion in their localized plans. And, also, by following the sports history of
Singapore and Japan during 1985-2011, we expect sports participation to grow at
a faster pace due to technological innovations which have re-invented and
brought new excitements to sports. Popularization of the internet, smartphone
and social media, plus easier and cheaper access to physical fitness information
are the likely catalysts. Presuming the industry gross value to reach RMB 7 trillion
by 2025, then our estimation of sporting goods sales CAGR will be 14.5%.
Offer even better risk and rewards
Some brands, distributors and
suppliers are still under-valued We foresee leading international and domestic brands that are equipped with the
right strategy likely to enjoy even faster growth, with their corresponding
distributors and manufacturers likely to share their success, so investing in them
could give us very good exposures. And if we factor in the valuations, some of
those plays could offer even better risks and rewards.
Pou Sheng (3813 HK) – BUY with TP of HK$ 2.02, the 2rd largest distributor of
Pou Sheng is the best play for
international brands gaining Nike/Adidas in China (they also have 15% of sale from other brands including
shares in China Under Armour. Skechers, etc.), with over 7000 POS. Being the primary
beneficiary of foreign brands taking market shares in China, we expect a 17.4%
sales CAGR driven by store expansions of some 600 (~8% per year), and a high
single digit SSSG in FY15-17, and also further improvements in margins from
operating leverages and more self-owned stores (wholesale margin is only 4% vs
self-owned’s 6-10%). They are trading at 12x FY16 PE, still at a discount to
foreign distributors like Foot Locker (FL US)’s 15x.
Kingmaker (1170 HK) – BUY with TP of HK$ 3.05, leading footwear OEM
Kingmaker benefits from the fast
growing New Balance and the operating in Vietnam, China and Cambodia, with the top 5 largest clients being
Vietnam bloom from TPP and New Balance, Clarks, Skechers, Asics and Wolverine (making up 86% of total
lower labour costs sales). We like their early mover advantages in S.E Asia, where Vietnam and
Cambodia accounted for 50% and 16% of total productions. We expect 17% and
21% sales and earnings CAGR thanks to the robust orders growth as clients are
shifting their Asia productions from China to other Asian countries due to lower
labour costs and tariffs (after signing TPP and VN-EU FTA, etc.), also backed by
a 21% CAGR in capacity in FY3/16-18. They are trading at 10x FY3/17 PE, which
is way below its industry average of 15x, but still at a discount to closest
comparable peer Fulgent Sun (9802 TT)‘s 16x. Our target price is based on 14x,
implying 44% total return.
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Best Pacific (2111 HK) – BUY with TP of HK$ 4.98, leading manufacturer of

Best Pacific enjoys decent growth lingerie components, including elastic fabric, webbing and lace, to global brands
from Victoria Secret and Under like Victoria's Secret, Calvin Klein, LuLu Lemon and Under Armour. Apart from
Armour with its superior products riding on the healthy global lingerie sales growth, BP's specialization in functional
quality and know-how
fabric gives them the edge to penetrate effectively into the active-wear material
market, along with their superb R & D capabilities and quality one-stop shop
services, they are well-positioned to capture the bloom of
Athleisure/Sports-fashion. We expect BP to deliver 20% earnings CAGR in
FY15-17, and initiate coverage with a BUY and TP of HK$ 4.98. They are trading
at 10x FY16 PE, deep discount to its peers around 21x offers re-rating
opportunity.
Leading domestic brands
Top picks: Anta (2020 HK), 361 Degrees (1361 HK), Xtep (1368 HK),
Peak (1968 HK)
Anta’s premium is well justified Anta (2020 HK) – BUY with TP of HK$ 26.83. We expect Anta to register a
from its strong and consistent decent sales CAGR of 18% in FY15-17 period, supported by strong trade fair
sales from FILA, Anta Kids and growth (~low-teens), stable growth in store counts (~2%), plus very strong growth
E-commerce, while their football
from FILA, Anta kids and E-commerce (~31%). And we are also optimistic that
series remain a wild card
gross margin will improve even more in 2H15 and 2016 from less retail discount
(esp. in the FILA stores) and lower raw material costs (petro chemical price fell by
20% yoy in 2H15). We also believe their big move into the football category could
serve as a potential catalyst due to the strong desire of government to mould
China into a strong football nation. They are trading at 20x FY16 PE, still at
discount to the international sports brand average of 26x.
Xtep (1368 HK) – BUY with TP of HK$ 5.78. We believe the re-invention of
We believe running will make top
spot in China, and Xtep deserves individual sports with technology advancement like social media, Apps and
a re-rating due to its greater focus wearables will boost running to become No. 1 sports in China in the future, we
on footwear, running, women and forecast a runners CAGR of 19% over 2013-25 period. Xtep, as a leader in the
fashion, as well as upgrading to
running category, also with favourable brand image in fashion and towards
functional
women, the mass market price point and well established online channels, would
be a major beneficiary, and with its growing focus on functional products, we
believe their brand equity and profitability will be further enhanced. Strategic
partnership with Wisdom (1661 HK), Tmall and SF Express are also positives.
We will not be surprised to see Xtep being re-rated in the near future, and foresee
them delivering 19% earnings CAGR in FY15-17. They are trading at 12x
FY16PE, still at a significant discount to industry average of 15x and Anta’s 20x.
361 Degrees (1361 HK) – BUY with TP of HK$ 3.91. 361D has over 80% of its
361 Degrees has a very attractive
valuations, and their efforts on SKUs catering to running, casual and swimming activities; segments which have
kids, smart shoes and better gained significant popularity in the last 2 years according to our research, and
running shoes also deserves they are the first among all domestic brands to launch the smart shoes for kids.
credits
These give them a boost in brand equity and first mover advantage on any further
developments in the smart segment. We rate a BUY due its attractive valuation
(8.5x FY16 PE, 4.7% yield) and decent growth profile (19% earning CAGR in
FY15-17), still at a huge discount to the industry average of 15x.

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Peak (1968 HK) – BUY with TP of HK$ 2.88, due to its attractive valuation, (11x
Peak is also attractive due to its
relatively lower P/E and high yield, FY16 PE and 5% yield), backed by a 10% earnings CAGR in FY15-17. We
and recent pick up in SSSG expect Peak to continue gaining market shares in the basketball segment and
indicates good momentum face limited foreign brand competition due to its lower price range and decent
price to quality ratio, also their running segment to grow fast and overseas
business to stabilize. We are confident of their trade fair sales to maintain its
momentum with mid-teens growth, after their SSSG picked up to high-single digit
in the latest quarter (3Q15). They are still trading at a larger discount to its
industry players’ average of 15x.
Li Ning (2331 HK) – HOLD with TP of HK$ 4.12. We agree that Li Ning is turning
Li Ning is for sure, turning around,
and doing very well in sales and around, as we can see its recent trade fair sales improved, sell-through rate
cost control after TPG’s exit, but increased and inventory-sales ratio in channel reduced. And we find their plans of
still, in our view, their valuation is 1) lowering its product price range 2) cost cutting and 3) resuming growth in
rich
stores reasonable, however we still find the valuation rich, as they are trading at
22x FY16 PE, higher than Anta’s 20x..
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Exhibit 2: Peer Group Comparison
3-mth EV/ EV/ Net Gross Net
Mkt cap avg t/o PER Hist PER FY1 PER FY2 EPS FY1 EPS FY2 3-Yr EPS Div yld Div yld P/B Hist P/B FY1 Ebitda Ebitda gearing margin margin ROE Hist ROE FY1 Sh px Sh px
Company Ticker Price (US$m) (US$m) (x) (x) (x) YoY% YoY% Cagr (%) PEG (x) Hist (%) FY1 (%) (x) (x) Hist Cur Yr Hist (%) Hist (%) Hist (%) (%) (%) 1-mth % 3-mth %
China Sportswear Brands
Adjusted sector avg* 16.2 16.5 15.3 6.6 13.9 37.4 0.8 5.2 3.1 1.3 1.3 15.1 7.1 2.9 43.4 6.5 8.1 7.3 3.1 31.2
Xtep Intl 1368 HK 4.47 1,267 3.6 16.8 13.4 11.9 25.3 13.5 17.2 0.78 4.0 4.2 1.69 1.65 9.0 6.7 0.0 40.8 10.0 11.4 12.5 6.9 28.0
361 Degrees 1361 HK 3.08 840 0.5 13.3 10.5 8.7 29.2 20.2 22.5 0.47 3.1 3.9 1.04 0.99 5.1 3.7 0.0 40.9 10.2 8.0 9.9 6.1 37.6
Peak Sport 1968 HK 2.39 743 1.2 12.9 11.6 10.9 12.6 6.4 10.3 1.12 6.6 6.2 0.98 0.94 5.0 4.0 0.0 38.0 11.3 8.9 8.4 0.4 36.9
Anta Sports Prod 2020 HK 23.50 7,696 12.9 28.5 24.4 20.8 18.5 17.2 16.5 1.48 2.8 2.9 6.13 5.66 20.3 16.6 0.0 45.1 19.1 24.2 24.4 10.2 31.0
Li Ning Co Ltd 2331 HK 4.13 1,007 3.2 N/A 148.6 19.2 N/A 673.9 (185.5) N/A N/A 0.1 2.06 2.04 (21.0) 12.8 23.3 44.6 (11.6) (8.5) 1.9 (0.5) 15.6
China Dongxiang 3818 HK 1.90 1,350 2.7 9.5 19.7 20.0 (52.4) (1.3) (22.9) N/A 9.2 4.3 0.92 0.86 32.8 6.6 0.0 50.8 72.5 12.3 4.0 (4.5) (2.6)
Pou Sheng Intl 3813 HK 1.67 1,159 0.9 248.0 17.5 12.4 1,313.8 41.6 27.2 0.64 N/A 0.0 1.34 1.24 18.7 8.5 17.8 29.3 0.2 0.5 7.0 33.6 38.0
Greater China Textiles Manufacturers
Adjusted sector avg* 16.1 13.4 11.7 11.5 16.7 14.1 0.9 4.4 4.2 1.4 2.4 9.9 9.8 11.1 20.0 6.7 11.9 13.4 (1.3) 3.6
Best Pacific Int 2111 HK 3.40 461 0.2 12.6 11.4 9.8 13.1 16.7 16.2 0.71 2.9 3.1 2.21 1.90 8.7 7.3 13.9 30.5 13.3 21.1 18.0 9.4 0.3
Kingmaker Foot 1170 HK 2.12 189 0.3 16.3 13.2 9.7 24.0 35.3 20.3 0.65 4.2 4.9 1.32 1.27 6.6 6.0 Net cash 14.5 3.9 8.6 8.6 5.5 58.2
Pacific Textile 1382 HK 12.04 2,247 2.5 16.3 15.0 13.5 8.8 10.7 10.4 1.44 6.6 6.6 5.02 5.00 13.4 11.7 0.0 17.1 15.6 33.3 33.4 7.5 13.8
Stella Internati 1836 HK 19.38 1,997 0.9 16.5 15.2 13.0 8.6 17.0 12.8 1.19 4.4 4.8 2.10 2.01 11.3 10.6 0.0 21.0 7.3 13.1 13.4 0.0 2.0
Regina Miracle I 2199 HK 10.32 1,709 N/A N/A 31.8 22.5 N/A 41.2 N/A N/A N/A 1.2 N/A 4.85 24.3 20.1 85.6 23.4 8.1 31.3 21.6 37.5 N/A
Shenzhou Intl Gp 2313 HK 40.60 7,446 13.6 22.7 20.1 17.4 14.2 16.1 14.7 1.37 2.4 2.5 4.05 3.67 16.6 14.8 0.0 29.0 18.6 20.0 19.3 2.4 8.1
Eagle Nice Intl 2368 HK 2.35 162 0.7 11.1 N/A N/A N/A N/A N/A N/A 7.4 N/A 1.09 N/A 6.0 N/A 0.0 17.5 6.9 14.1 N/A 13.6 58.9
Texhong Textile 2678 HK 5.50 638 0.4 13.0 6.7 5.1 97.1 30.6 45.3 0.15 3.6 4.6 1.11 1.06 7.9 5.6 111.6 12.4 2.9 13.6 16.2 (2.8) (9.8)
Luen Thai Hldgs 311 HK 1.12 149 0.0 6.9 7.2 4.8 (4.8) 50.0 24.0 0.30 5.9 6.9 0.40 0.38 1.4 2.1 0.0 17.7 1.8 3.3 5.2 0.0 (13.8)
Texwinca Hldg 321 HK 7.78 1,387 1.8 13.9 11.7 10.6 18.9 9.8 13.6 0.86 7.2 8.4 1.80 1.78 9.2 7.3 0.0 34.1 8.3 13.0 15.1 (1.9) 6.0
Win Hanverky 3322 HK 1.68 283 0.7 67.2 N/A N/A N/A N/A N/A N/A 4.7 N/A 0.97 N/A 6.4 N/A 0.0 28.2 0.9 7.3 N/A 7.5 67.6
Fountain Set Hld 420 HK 0.86 134 0.1 11.5 N/A N/A N/A N/A N/A N/A 4.7 N/A 0.33 N/A 3.9 N/A 10.9 10.4 1.3 3.3 N/A (12.2) 10.3
Victory City Int 539 HK 0.83 234 2.7 3.7 4.4 4.2 (15.9) 5.3 (2.4) N/A 14.5 10.2 0.32 N/A 4.8 4.3 33.0 18.6 7.8 4.8 6.4 (4.6) (20.2)
Yue Yuen Ind 551 HK 26.95 5,691 7.4 17.3 12.9 11.3 32.9 14.6 19.8 0.65 4.5 4.4 1.28 1.25 11.5 8.1 0.0 22.1 4.1 10.1 10.0 (9.6) (3.3)
Far Eastern New 1402 TT 26.05 4,284 5.8 11.8 13.3 12.8 (10.8) 4.1 (2.9) N/A 4.5 5.2 0.70 0.60 12.5 11.0 58.3 20.3 4.7 4.5 3.6 (11.8) (7.4)
Formosa Taffeta 1434 TT 30.30 1,583 1.4 14.5 17.6 11.7 (16.5) 50.4 10.2 1.72 4.6 4.3 1.00 1.00 10.2 11.2 16.7 11.9 7.3 5.7 6.1 (6.8) 7.5
Eclat Textile Co 1476 TT 440.00 3,556 30.3 38.2 28.5 23.4 36.0 21.9 27.4 1.04 1.8 2.2 11.12 10.11 28.9 21.3 7.8 26.2 14.4 41.2 38.6 (4.3) (14.9)
Makalot Industri 1477 TT 215.50 1,325 13.3 23.2 19.8 16.7 19.0 18.0 18.9 1.05 3.4 3.9 5.04 4.81 18.3 14.7 0.0 21.7 8.2 26.0 25.4 (9.3) (21.4)
Toung Loong Text 4401 TT 94.70 351 1.5 25.9 19.6 16.7 33.5 17.3 23.0 0.85 3.7 3.7 4.81 5.15 16.4 13.5 52.6 18.1 10.2 21.4 23.4 (3.5) (25.7)
Fulgent Sun Inte 9802 TT 54.70 226 2.0 17.1 61.1 16.8 (71.4) 263.2 8.4 7.30 4.4 0.9 1.29 1.26 9.1 14.8 5.3 16.0 4.5 7.4 5.4 5.5 35.4
Pou Chen 9904 TT 42.55 3,926 12.6 14.5 12.0 10.8 24.6 10.5 17.4 0.68 3.4 3.8 1.86 1.58 14.9 10.3 12.6 22.7 3.5 16.3 12.3 (8.2) (11.8)
Feng Tay Enterpr 9910 TT 177.00 3,316 12.2 34.2 26.2 22.1 34.2 18.4 23.7 1.11 2.0 2.5 8.96 8.29 19.1 16.0 11.6 20.5 6.5 36.9 33.3 (3.7) (4.2)
Taiwan Paiho Ltd 9938 TT 78.40 724 7.9 23.8 20.0 16.6 21.1 20.2 15.5 1.29 2.5 3.0 3.33 3.08 12.5 10.2 0.0 33.5 10.7 16.8 15.7 3.0 (6.5)
* Outliners and "N/A" entries are in red and excl. from the calculation of averages
Source: Bloomberg, OP Research

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Active government pushes
Three birds with one stone
China needs a growth driver
China is on its way to achieve the
6.5% GDP growth target, and new Amid the recent slowdown in economic growth, the central government is eager
driver is needed to push harder in areas that can fuel future growth, in order to meet their target of
doubling the GDP by 2020 compared to 2010. This target has been reiterated by
former President Hu Jin Tao in the 12-5 Plenum and again by current president Xi
Jin Ping during the recent plenum meeting, thus implying the CAGR of China's
economy should be no less than 6.5% during the period 2016-2020.
Sports sector could be the right tool
Sports sector is a perfect mix of
driving GDP growth, reducing We believe the sports sector would be a right tool to assist economic growth
future healthcare costs, and going forward and totally in line with the desire to shift to a consumption-based
creating harmony within the economy, because 1) China is in a way under-developed in terms of sports
community
contribution to GDP against other more developed countries, therefore the room
for growth is considerable 2) promoting sports will make the population healthier
and therefore reduce future costs in healthcare and 3) great potential for
promoting harmony within the society.
This is why central government Favourable policies and the RMB 5 trillions target
lay down the 5 Trillion industry
One of the milestones is when they published the note 《State Council's Guiding
size target in Oct2014, that also
Opinions on Accelerating the Development of Sports Industry and Promoting
include rising sports participation,
Sports Consumption》 in Oct 2014, which listed out 4 key goals to be completed
and building required sports
facilities by 2025, namely:
1) develop the sports industry’s gross value to be RMB 5 trillions, and under
our estimate, it translates into industry value added per year to be RMB 2 trillions,
representing about 1.3% of GDP in 2025 comparing to 0.67% in 2013,
2) to increase that portion of the population which frequently exercise to 500
millions,
3) to create no less than 2sq.m. sports area per capita and
4) achieve 100% coverage of sports facilities in new neighborhoods.

Also enterprises focused on sports-related services or manufacturing industries
will qualify for the status of “High and New -tech Enterprises”, qualifying them for
a favourable tax rate of 15%.

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Policy at a glance via Charts
Exhibit 3: Size of the Sports industry by 2025, in RMB and as % of GDP

(RMB bn)
8,000 4%
3.5%
7,000 7,000 4%
6,000
3%
5,000 5,000
3%
2.2%
4,000
1.8% 2%
3,000
1.3% 2%
2,000
1,100
1,000 1%
0.7%
- 1%
China 2013 China 2025 - China 2025 - OP EU 2013 US 2013
Gov. target est.
% of total GDP - RHS Sports industry gross value - LHS
Source: General administration of Sports, European Commission, Wind, US Census Bureau, OP Research
Exhibit 4: Size of the population by 2025 which exercise frequently

(mn people)
550
500
500
450
400
378
350
300
China 2013 China 2025 - Gov. target
Source: State Council, General administration of Sports, OP Research
Exhibit 5: Sports area per capita by 2025

(m2)
20 19.0
16.0
16
12
8
4
2.0
1.5
1.03
0
China 2003 China 2013 China 2025 - US Japan
Gov. target
Source: State Council, General administration of Sports, OP Research
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A year has passed since Oct2014, A year has passed since the State Council issued its guidance on the
and 26 provinces had announced sports industry
their localized plans In October 2014 the state council issued 《Guiding Opinions on Accelerating the
Development of Sports Industry and Promoting Sports Consumption》, and up to
October 2015 more than 26 provinces had issued their local plans to boost sports
industry growth.
We think they will overshoot their We think it will be likely exceed 5 trillion RMB, perhaps even 7 trillions
target by 2025, because 1) new We are optimistic the Central Government will overshoot its national goal, with
experience and excitements from total value of sports industry hitting 5 trillions, or even 7 trillions by end of 2025,
new technologies, 2) breaking
because:
into the fashion market by
Athleisure clothings, 3)
1) Given the availability of more advanced technologies, internet, smart phones,
aggressive government targets
social media and Apps, we expect a faster pace of sports development in
China than other countries in the past (e.g. Singapore and Japan during the
1985-2010)
2) Athleisure trend is overwhelming, thanks to advancements in textile
technology which have made various functions available to be equipped in
sportswear, and due to the small size of sportswear in global apparel (7%of
total sales) and footwear (13 of total sales) markets, the room for Athleisure
clothing to penetrate into the traditional fashion is huge.
3) According to the 26 provincial governments, which have announced their
individual plans, including Beijing’s 3 trillion, Fujian’s 1 trillion and Jiangsu’s
800 million RMB, the total is over 7 trillions, with 6 others yet to be
announced.
4) The target is still conservative, translating into a mere 1.3% contribution to
GDP (even though doubling the 0.67% of 2013), and still way below Japan's
and US’s 2.5% and 3.5%.
We think reaching 7 Trillion is By producing 7 trillion in gross industry value, we deduced a 2.8 trillion industry
likely, and even so it still only
value added per year, representing 1.8% of GDP, which will translate into 14.5%
account for 1.8% of GDP
sales CAGR for sporting goods sales in China during 2013-2025.

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Mon, 07 Dec 2015

Global sporting goods industry

Government spending is set to accelerate
More public spending on sports
We think the public spending will accelerate in the near future, as many of the
will be seen in the near future
local governments had issued their plans to fulfil the RMB 5 trillions and its own
localized target, measures being rolled out included 1) building more facilities in
both urban and especially in rural areas , 2) and to revamp the old facilities in
the past, 3) increase the opening hours of facilities and lastly 4) to increase the
efforts in school, allowing children to have more exercising opportunity, etc.

Exhibit 6: Public Spending on sports sector and growth rate
40 37.1 30%
35 24.0%
25%
29.9
30 26.6 27.2
25.4
23.8 20%
25
20.5 16.1%
20 15%
9.8%
15
10%
6.7%
10 4.8%
2.3% 5%
5
0 0%
2008 2009 2010 2011 2012 2013 2014
Public sports expenditure Growth (%)

Source: Various official data, OP Research

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