Date of Report

October 24, 2024

Broker Name

UOB Kay Hian Private Limited

Company Overview

Founded in 2001, Xtep International Holdings is a leading international sporting goods company in China. The company specializes in producing professional sports goods while maintaining a unique positioning in the sports fashion market. Xtep offers consumers sports products that emphasize individuality and cost performance, utilizing a differentiated marketing strategy that combines sports and entertainment.

Stock Data

• Share Price: HK$5.70
• Target Price: HK$7.80
• Upside: +36.8%
• GICS Sector: Consumer Discretionary
• Bloomberg Ticker: 1368 HK
• Shares Issued: 2,644.5 million
• Market Cap: HK$15,073.8 million (US$1,939.9 million)
• 3-Month Average Daily Turnover: US$7.4 million
• 52-Week High/Low: HK$7.13/HK$3.13

Price Performance

• 1 Month: +20.5%
• 3 Months: +37.0%
• 6 Months: +48.6%
• 1 Year: -10.4%
• Year-to-Date: +48.9%

Major Shareholders

• Success Group Corporation Limited: 46.51%

Financial Overview

• FY24 NAV/Share: Rmb 3.74
• FY24 Net Cash/Share: Rmb 0.36

Operational Updates

In 3Q24, Xtep’s core brand recorded mid-single-digit retail sell-through growth, which was weaker than management’s expectations. Although business operations have shown sequential improvement, achieving the full-year revenue target is considered challenging. The company plans to focus on inventory and profit rather than solely fast retail sell-through growth.

Key Updates

• Retail Sell-Through Growth: Decelerated in 3Q24 compared to previous quarters.
• Inventory and Discount Levels: Remained healthy, with stable inventory turnover at around four months and a discount level maintained at approximately 25%.
• Management Strategy: Plans to prioritize inventory and profit over rapid retail growth, expecting improved discounts during the Double 11 shopping festival.

Retail Channel Performance

• Offline Channel: Achieved slightly positive growth.
• Online Channel: Saw double-digit growth.
• Xtep Kids: Outperformed Xtep adult wear with low double-digit retail sell-through growth.

Future Outlook

• Management is optimistic about the growth of the Saucony brand, which recorded over 50% retail sell-through growth in 3Q24.
• The divestiture of the KP brand is expected to be completed by the end of November 2024, with special dividends anticipated.

Earnings Revision and Risks

• No earnings revision has been made.
• Risks: Lower-than-expected retail sell-through growth in 4Q24 and the potential for deeper discounts.

Valuation

• The broker maintains a “BUY” recommendation with a target price of HK$7.80, reflecting a price-to-earnings ratio of 14.4x for 2024F and 12.9x for 2025F, with the current trading at 11.3x for 2024F and 10.1x for 2025F.