Guosheng: Current demand in sportswear and footwear is diverging; focus on high-quality targets.

Guosheng released a research report stating that since 2020, the domestic sportswear and footwear industry has undergone significant changes, with industry growth gradually slowing and listed companies' stock prices generally trending in a volatile manner. 2016~2021 was the golden era for sports brand development. Since 2022, industry growth has slowed, and sector targets have experienced "valuation de-rating," with the average valuation of sportswear and footwear sector companies falling from about 40x in mid-2021 to about 10x currently. The bank expects that the sportswear and footwear industry may enter a phase of steady total growth and differentiated demand structure in the future, with investment focus on conglomerate companies and vertical brands. Guosheng's main views are as follows: 2016~2021 was the golden era for sports brand development, with outstanding performance from sector companies and a continuously rising valuation center The bank believes that 2016~2021 was the golden phase of rapid development for the domestic sportswear and footwear industry. During this period, the revenue/net profit attributable to parent of key Hong Kong-listed sportswear and footwear companies achieved CAGRs of 23%/27%, respectively, and international comprehensive sports brands such as Nike and adidas also achieved rapid growth in Greater China. Against the backdrop of sustained performance growth and the market maintaining optimism about the industry's long-term development space, the valuation center of sector companies rose in tandem. The bank judges that the industry's high prosperity in this phase was mainly driven by the following factors: 1) rising resident income and consumption upgrading solidified the foundation for apparel consumption, with China's per capita disposable income CAGR from 2014~2021 at about 8.3%; 2) increased health awareness and policy support drove the continuous rise in residents' sports participation rate; 3) sportswear and footwear gradually broke through professional sports scenarios and penetrated into daily life, leisure, and commuting scenarios, with the consumer base and usage boundaries continuously expanding. Since 2022, the growth of the sportswear and footwear industry has slowed, and sector targets have experienced "valuation de-rating" From 2021~2025, the revenue/net profit attributable to parent CAGRs of key Hong Kong-listed sportswear and footwear companies fell back to 11%/10%, respectively, and some brands faced issues such as inventory pressure and deeper discounts at certain stages. Since 2026, the operating performance of sportswear and footwear brand companies has remained relatively volatile. Among this, in 2026Q1, sector companies' sales performance was relatively good driven by holiday demand, while in 2026Q2 and Q3, limited by factors such as weather fluctuations, brand companies' sell-through performance weakened. Reflected at the valuation level, the average valuation of sportswear and footwear sector companies fell from about 40x in mid-2021 to about 10x currently. The bank judges that the industry slowdown mainly stems from the following aspects: 1) volatility in the consumption environment, with residents becoming more cautious in apparel consumption; 2) sports participation rate and sportswear and footwear penetration rate already at relatively high levels. The proportion of people in China who regularly participate in physical exercise reached 33.9%/37.2%/38.52% in 2014/2020/2025, respectively, while the "National Fitness Plan (2026-2030)" proposes reaching 40% by 2030, indicating that the pace of improvement in sports participation rate is slowing; 3) casual apparel brands continue to strengthen the sports functionality and multi-scenario applicability of their products, further intensifying competition with sports brands. The bank expects that the sportswear and footwear industry may enter a phase of steady total growth and differentiated demand structure in the future, with investment focus on conglomerate companies and vertical brands On the one hand, conglomerate companies with multi-brand operating capabilities can enter high-growth-potential niche tracks through acquisitions, joint ventures, or incubating brands, and leverage the group's resources in supply chain, channels, retail operations, and talent to improve the growth efficiency of new brands. ANTA SPORTS' layout and operation of brands such as DESCENTE, KOLON SPORT, and MAIA ACTIVE are somewhat representative. On the other hand, vertical brands with outstanding product strength and strong brand influence in professional fields are expected to continue increasing their share in niche markets after industry tailwinds weaken, and, without weakening their professional positioning, achieve broader market reach by expanding categories and lifestyle scenarios. Representative brands include Arc'teryx, On, and HOKA. Investment recommendations Key recommendation on ANTA SPORTS, which has significant conglomerate operating capabilities. The company has excellent multi-brand operating capabilities and has the opportunity to capture growth opportunities across various niche tracks/categories, thereby enhancing growth resilience at the group level. The current stock price corresponds to 2026/2027 PE of 12x (excluding one-off gains)/11x; pay attention to LI NING. With the optimization of product structure, there is room for improvement in the company's performance. The current stock price corresponds to 2026/2027 PE of 13x/11x; additionally, in the non-sportswear and footwear sector, the bank has previously mentioned that the sportization of casual brands is an important current trend. The bank recommends Biem.L.Fdlkk Garment, which has relatively high certainty of performance growth, corresponding to 2026/2027 PE of 19x/15x. Risk warnings: risk of weak consumption power and volatility in the consumption environment, store expansion falling short of expectations, e-commerce business construction falling short of expectations, management team optimization falling short of expectations, and exchange rate fluctuation risk.