Founded in 1949 as "Onitsuka Co., Ltd" by Kihachiro Onitsuka and headquartered in Kobe, Japan, ASICS Corporation has established itself as a prominent entity in the sports products industry. Initially focused on the manufacture and sale of sports shoes, sportswear, sports equipment, and other related products, the company underwent a significant transformation when it merged with GTO Co. and JELENK Co., subsequently adopting the name ASICS Corporation. Since its listing on the Tokyo Stock Exchange in 1986, ASICS has expanded its operations and workforce, now employing 8,987 individuals.

ASICS operates through five primary business segments, with the Performance Running segment being the most significant, contributing 51% of the total net sales for FY24. The Sport Style segment and Onitsuka Tiger segment each account for 15% of net sales, while the Core Performance Sports segment contributes 12%, and the Apparel and Equipment segment makes up 6%.

Geographically, ASICS has strategically positioned itself as a key player in the Sports Footwear and Accessories Industry, with substantial operations in Europe, which generated 25% of FY24 total net sales. Japan follows closely, contributing 24%, while North America accounts for 19%. Greater China represents 14% of sales, Oceania 6%, Southeast and South Asia 5%, and other regions collectively contribute 6%.

Long-term outperformance

ASICS Corporation has demonstrated consistent performance over the past five years, achieving a revenue CAGR of 12.4%, reaching JPY679bn in FY24. This growth was primarily driven by the Sport Style segment, whose contribution significantly improved by 24%, reaching 51% of total net sales in FY24. This surge was largely fueled by the momentum of the VINTAGE TECH line, exemplified by the GEL-KAYANO 14, and supported by a strengthened global marketing strategy.

Moreover, the Greater China segment exhibited robust expansion, with a CAGR of 21%, driven by locally produced and developed products tailored to meet local demand. This strategic localization has proven effective in capturing market share and driving revenue growth in the region.

In addition, ASICS's EBIT increased at an impressive CAGR of 57%, reaching JPY100bn in FY24. As a result, margins expanded significantly by 1200 bps to 15%, supported by streamlined operations and effective operating cost management.

Consequently, this positive and consistent bottom-line performance led to sustained positive FCF over the same period, enabling the company's cash position to increase more than 2.2x, from JPY39bn at the end of FY19 to JPY127bn at the end of FY24. However, it is noteworthy that total debt also increased, rising to JPY125bn in FY24 from JPY57bn in FY18. Despite this increase, ASICS's net-debt to EBITDA ratio remained at a manageable 0.5x, indicating a stable financial position.

ASICS local peers, Yonex Corporation and Mizuno Corporation have also exhibited revenue growth over the past five years. Yonex's revenue grew at a slightly higher CAGR of 13.8%, reaching JPY116bn in FY24. In contrast, Mizuno's revenue grew at a CAGR of 5.2%, resulting in sales of JPY 230 billion in FY24.

In terms of profitability, ASICS outperformed its peers with an EBIT margin of 15% in FY24, significantly surpassing Yonex's EBIT margin of 9.9%, and Mizuno's EBIT margin of 3.2%.

Positive management outlook

Looking ahead, ASICS Corporation anticipates record highs in sales and various profit metrics, driven by continued growth in the SportStyle and Onitsuka Tiger segments, alongside Performance Running as the core segment. The company projects net sales to increase by 15%, reaching JPY780bn, and operating profit to rise by 20%, totaling JPY120bn. Consequently, the operating margin is expected to expand by 60 bps, reaching 15.4%.

Segment-wise, the SportStyle segment is anticipated to experience the highest growth, with projected net sales increasing from JPY98bn to JPY132bn, representing a growth rate of 34% y/y. Operating profit is expected to increase by 38% y/y, reaching JPY37bn, with margins of 28%, up 70 basis points y/y. This growth can be attributed to the further diversification of the product portfolio and the enhancement of brand experience value through the Direct-to-Consumer (DTC) channel.

Moreover, the Onitsuka Tiger segment is projected to see significant growth, with net sales increasing from JPY95bn to JPY120bn, reflecting a 26% y/y rise. Operating profit is anticipated to grow by 39% y/y, reaching JPY45bn, while margins are expected to improve by 3.5pp, from 34.0% to 37.5%. This growth is primarily driven by accelerated global expansion and strengthened branding efforts, particularly in Europe.

Justified premium valuation

Over the past 12 months, the company's stock has delivered staggering returns of approximately 127%, reflecting a positive fundamental trajectory. In comparison, its local peer, Yonex, delivered similar returns of 119%.ASCIS have positive rating amongst 10 analysts, with eight recommending a ‘Buy’ rating and one giving an ‘Hold’ rating for an average target price of JPY3,697, implying upside potential of 5%.

The analysts’ views are further supported by an anticipated EBIT CAGR of 17% over the period FY24-FY26, reaching JPY136.8bn, with margins of 17% in FY26. Additionally, analysts estimate a net profit CAGR of 19%, reaching JPY91.0bn with margins of 11% in FY26. In contrast, analysts estimate lower EBIT CAGR of 11% and net profit CAGR of 9% for Yonex.

ASCIS is currently trading at a P/E ratio of 31x, based on the FY25 estimated EPS of JPY112, which is higher than its three-year historical average of 28x and its local peer Yonex, at 20x. Similarly, on an EV/EBIT basis, the company is currently trading at 18x, based on the FY25 estimated EBIT of JPY122.5bn, which is in line with its three-year historical average of 18x but higher than its local peer Yonex, at 15x.This premium is justified given its superior margins and positive outlook.

Overall, ASICS presents a compelling investment case, supported by solid fundamentals and a positive revenue outlook in its Performance Running segment. The company has consistently surpassed consensus estimates, achieving record results in FY24. As a prominent player in the Sports Footwear and Accessories industry, ASICS is actively expanding into new markets beyond Japan. Nevertheless, potential risks include intensifying competition, supply chain disruptions, brand diversification challenges, and compliance issues.