Case Study untitled
Financial and Strategic Analysis for Anta

Identify a company to research.

The company chosen is: ANTA Sports Products Limited.

 

Secure a copy of the external accounts and commence an analysis of these.

  1. Generally speaking, it can be seen that ANTA is a fast growing company.
  2. The revenue of the company is increasing, consistent with the trend that the retail stores of the company are increased from 2006 to 2010 in China.
  3. As a result, the equity of the company is also increasing. The company is a profitable company in the past five years.
  4. The ROA of the company range around 20% in the past five years. This is a great achievement for a sport apparel and equipment firm, despite great competition from other western multinationals companies, such as Nike, Adidas, Puma, and Reebok.
  5. The ROIC is even more encouraging – ranging around 25%. This indicates that the management is competent in utilizing the capital to generate profits for the company.
  6. The gross profit margin is range around 40% in the recent years. The ability of the firm to generate such a high gross profit margin indicates that the company possesses certain competitive advantage in the marketplace. Most likely, high margin is possible due to the high brand equity of the firm among consumers’ perceptions.
  7. Similarly, both the operating profit margin and net profit margin range around 20%. Such an achievement can be considered as excellent achievement, when compared to other industry or companies. It is not common for company to churn out 20% net profit margin unless the particular company has significant economic moats.
  8. The performance of the asset turnover rate is satisfactory.
  9. The inventory turnover rate of 6 times indicates that the inventory of the company is well-managed. The company able to keep a low level of inventory in its operation.
  10. From the debt to equity ratio (of 0.7), it can be seen that the company is moderately leveraged. The company is not excessively geared.
  11. The payout ratio has been increasing significantly. This means that the company may be lacking of viable reinvestment opportunities in the industry.
  12. Both the current ratio and cash ratio indicate that the company is conservatively managed. ANTA is not facing significant solvency risks.

 

analysis-anta

 

Research the stock exchange of the country concerned with respect to its efficiency and background.

  1. ANTA is listed in Hong Kong Stock Exchange (HKSE).
  2. The HKSE is Asia’s second largest stock exchange in terms of market capitalization (just behind the market capitalization of Tokyo Stock Exchange).
  3. HKSE is highly liquid. The market breath of HKSE is depth as well.
  4. Many of the well-known companies from mainland China are listed in HKSE.
  5. HKSE is a reputable market as well.

 

Track the share price and commence wider research into the company in terms of its products, sectors, SWOT, PESTLE, recent history, competitors etc. Consider Michael Porters work on competitive forces and investigate the potential for this analysis.

Anta Products include: sport shoes (such as badminton, basketball and running shoes); sports shirts, rackets, basketball, and many other types of sport apparels and equipment. In fact, as the company grows, the product portfolio is being increased from time to time.

 

Competitors of ANTA include: Nike (i.e., the market leader around the globe), Adidas, Puma, Reebok, and any other smaller competitors in the sport apparels and equipment industry.

 

SWOT Analysis for ANTA:

  1. Strengths:
    1. Well-established brand name in China.
    2. Able to churn out high profit margin. This can be attributed to excellent marketing and branding efforts by competent management.
    3. Ambitious management team.
    4. Having own R&D center to continuous improvement of the quality and performance of the products.
  2. Weaknesses:
    1. Lack of brand presence in other part of the world.
    2. Almost all revenues derived from China. Lack of geographical diversification.
    3. Lack of experience in international expansions. Time may be required to acquire cultural or social know-how in the many foreign countries.
    4. Lack of reinvestment opportunities in current business strategic direction. The company must move out from China for further growth.
  3. Opportunities:
    1. Located in the country of fastest growing economy and biggest population in the world – namely, China.
    2. May be able to penetrate market in the international context.
    3. Internet users in China are growing fast. ANTA can restructure its business operation, or to create a new division for digital and internet marketing purposes. This may enable the firm to further lower down the cost structure.
  4. Threats:
    1. Intense competition from competitors in other part of the world.
    2. Competitors are strong and well-established. For example, Nike as the market leader is holding more than 40% of the market shares around the world. Most of the competitors are having strong financial position and marketing knowledge on how to penetrate different markets/ regions/ countries around the world.
    3. The rising labor costs in China may decrease the company’s profit margin.

 

PESTLE Analysis for ANTA:

  1. Political factors:
    1. Generally speaking, political situation in China is stable.
    2. Except economic turbulent and chaos in middle east, the world is relatively a safe place. However, there may be some degree of terrorists attack on the western countries after the death of Osama bin Laden.
  2. Economic factors:
    1. China is located in one of the fastest and most promising growing economy in Asia. This provides geographical advantage to ANTA.
    2. The economy of the west remains fragile. Unemployment rate is high. ANTA may not reap huge profits from expanding to such regions.
    3. It is obvious that commodity prices have been increasing due to worldwide inflationary pressures, particularly in Asia. This may affect the profit margins of ANTA negatively.
    4. Central government of China is trying to increase the domestic demand of China. This will beneficial for ANTA, which has strong brand presence in China.
  3. Social and Cultural factors:
    1. ANTA will be required to learn the cultural differences in conducting business in other nations.
    2. The living standards of people are improving. They have better purchasing power.
    3. People are more health conscious – they are more likely to place greater importance on exercise, body health and fitness.
    4. Population is aging in developed countries. ANTA may need to offer different products to cater for their needs.
    5. Society is placing great importance on Corporate Social Responsibilities activities by companies. Ethical behaviors are to be expected from businesses around the world.
  4. Technological factors:
    1. Proliferation of internet within emerging countries. The world essentially had entered into the information era, with give rise to social media and internet marketing.
    2. High performance sports apparels and equipment is in great demand.
  5. Legal factors:
    1. Depending on where the company performs its business, the local legal requirements must be understood and complied with.
  6. Environmental factors:
    1. People are getting more environmentally conscious. It is important for socially responsible corporation to design products to mitigate the effects of global warming or reduction of emissions.
    2. Green products design as well as green technologies is the trend for the future.

 

Porter Five Forces for ANTA:

  1. Rivalry among existing competitors:
    1. The rivalries among existing competitors are intense. It can be seen big players are aggressive in terms of marketing promotional activities and market penetration strategies.
    2. The competitors are big in size and have deep financial pocket. It is not easy to win against them through face to face competition in the international arena.
  2. Bargaining power of buyers.
    1. Buyers face no switching costs. The purchasing decision is greatly affected by pricing and brand loyalty. Thus, companies have less bargaining power, unless they have great and respectable brand name in the marketplace.
    2. In the ever challenging business landscape, buyers are getting more demanding. As there are a lot of brand names to chose from, the buyer have high bargaining power – an unfavorable position for ANTA.
  3. Bargaining power of suppliers.
    1. Most of the suppliers have smaller size if compared to the companies operating in the industry. Thus, the suppliers have weak bargaining power.
  4. Threats of substitute products.
    1. For high performance sport equipment, there are few substitutes.
    2. However, for sport apparels, many substitutes exist. Competition will be dependent on brand presence and effectiveness of company’s marketing promotional and communication activities.
  5. Threats of new entrants.
    1. There will be potential entrants, due to obviously high margin enjoyed by the industry players.
    2. Overall, the treats of new entrants are moderate. The real worries are however, the threats of counterfeit products in China.

 

Research the past history of the company and relate recent price changes to past events, especially the last 2 years.

  1. The revenue of ANTA has been increasing steadily since the year 2006.
  2. Similarly, the profits attributable to stockholders are also increasing steadily since the year 2006.
  3. The number of ANTA retail stores has also been increasing since 2006.
  4. Apparently, the stock prices of ANTA do not reflect efficiently on the fundamentals of the company.
  5. It can be seen that the stock prices dropped during the financial crises in 2008 (despite improving fundamental condition for the firm).

 

anta-chart

 

Reflect on the future for this company and make, reasonable predictions concerning its future (ongoing).

  1. ANTA is performing well in China, but due to the already competitive business landscape in China, the growth rate of the firm is expected to be slowing down. However, depending on the growth of domestic demands in China, the company may be able to tap into the growth of living standards in China in the long run.
  2. In the international context, the expansion of ANTA will surely face with strong competition from big players, such as Nike, Adidas, Puma, and etc. The global expansion will be a challenging venture. Many resources will be required to be spent on marketing efforts.
  3. Overall, the company can still grow steadily, primarily driven by local Chinese market.

 

Summarize and explain the international influences on this company (ongoing).

  1. In order to become international company, the company may need to harmonize its financial reporting standards, to become more readable by investors outside China.
  2. The company must learn the cultural and social know how in conducting business in other nations. It is critical for ANTA to build up marketing intelligence in the foreign countries for successful business expansion to other regions of the world.
  3. Partnership or formation of strategic alliances with other companies in the foreign countries is required to penetrate the other nations.
  4. The international trends, from political, social, cultural or economic factors will affect the companies. As the company grows bigger, the company has no choice but to expand overseas. The changes in the global business landscape will definitely affect the strategic directions and competitive strategies for the firm.
  5. The competition of multinational competitors, with well-established and long success track records from US and Europe are the biggest threats to the firm.
  6. The company must adhere to the local rules, regulation and best practices for successful venture into these new markets.
  7. It is crucial to educate consumers in the different regions of the world to nehnace brand awareness.

 

As part of your accounts analysis be prepared to compare (benchmark) with others. This can be done by swapping research with others in the group.

  1. Overall, the company is performing well. From the fundamentals of the company, it is a good company to invest in.
  2. ANTA is particularly doing well from its profit margin and the growth rate in the past five years.
  3. However, the stock prices of the firm are not well performing. There may need time for the market fraternity to be aware of ANTA to bring the company to better valuation.

 

 

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