UOB Kay Hian
Date of Report: Thursday, 17 July 2025

Xtep International Holdings: Robust Growth Outlook and Saucony Expansion Signal Strong Upside Potential

Overview: Xtep Maintains Upward Trajectory Amid Multi-Brand Expansion

Xtep International Holdings (1368 HK), a leading multi-brand sportswear company in China, is showing solid momentum in 2025, with its comprehensive brand portfolio—Xtep, Saucony, and Merrell—targeting both mass market and professional sports segments. The company remains on track to achieve its full-year revenue and profit growth targets, and continues to execute on its mid-term ambition to double Saucony’s revenue within three years.

Xtep International Holdings at a Glance

• Share Price: HK\$5.34
• Target Price: HK\$8.00 (Upside: +49.8%)
• Market Cap: HK\$14,858.5m (US\$1,892.8m)
• 52-Week Range: HK\$4.15 – HK\$7.13
• Major Shareholder: Success Group Corporation Limited (46.64%)
• GICS Sector: Consumer Discretionary
• Analysts: Stella Guo, Shirley Wang, Ejann Hiew

Key Highlights: Confident Guidance and Channel Strategy

• The core Xtep brand posted low single-digit retail sell-through growth in 2Q25, with momentum improving into July.
• Management remains confident in achieving its full-year targets for both revenue and net profit growth (over 10%).
• Saucony is on track to double its revenue within three years, driven by an accelerated store rollout and strong sell-through performance.
• Discounting and inventory turnover remain stable, supporting healthy channel dynamics.

Operational Update: Channel Performance and Inventory Management

In the second quarter of 2025, the core Xtep brand recorded low single-digit retail sell-through growth, compared to mid-single digit growth in the first quarter. This brought first half 2025 sell-through growth to the mid-single digit level. Notably, online channels continued to outperform offline stores, which saw largely flat retail sell-through.

Momentum improved in July, supported by new running product launches scheduled for the second half of the year. Management expects these initiatives to help meet the company’s full-year revenue and net profit growth targets.

In its direct-to-customer transition, Xtep plans to reclaim distribution rights for 100–200 stores in 2025 and an additional 300–400 stores in 2026. The financial impact is expected to be contained, with related expenses estimated at around RMB 400 million. The total number of stores is projected to remain stable, with the company focusing on upgrading to newer and larger store formats and expanding in shopping malls and outlets.

Stable Discounts and Inventory Turnover

• Inventory turnover: As of end-2Q25, channel inventory turnover was around 4–4.5 months, compared to around 4 months at end-1Q25.
• Discount levels: Discounting remained stable at 25–30% off in 2Q25, a level management expects to maintain for the full year.

Saucony: Accelerated Growth and Store Expansion

Saucony delivered impressive growth, achieving over 20% retail sell-through growth in 2Q25 (versus over 40% in 1Q25), and over 30% growth for the first half of the year. Management plans to accelerate store expansion in the second half, targeting a net addition of 30 stores in 2025. The company remains confident in reaching its full-year revenue growth target of 30–40% for Saucony, with improved profitability despite higher product and brand expenses. The mid-term goal of doubling Saucony’s revenue within three years is firmly on track.

Key Financials: Profitable Growth and Healthy Margins

Retail Sell-Through Growth Rate and Channel Metrics

Valuation: Attractive Upside, Strong Fundamentals

• Target Price: HK\$8.00 (DCF-based, implying 13.7x 2025F PE and 12.6x 2026F PE)
• Current Valuation: 9.4x 2025F PE and 8.6x 2026F PE
• Recommendation: Maintain BUY rating with strong conviction on mid-to-long term growth

Profit & Loss, Balance Sheet, and Cash Flow Highlights

Profitability Metrics (2024–2027F):

• EBITDA margin: 16.4% (2024) to 18.6% (2027F)
• Net margin: 9.1% (2024) to 10.6% (2027F)
• ROE: 13.7% (2024) to 15.2% (2027F)

Growth Metrics:

• Turnover CAGR (2024–2027F): 5.1%
• Net profit CAGR (2024–2027F): 10.3%
• EPS CAGR (2024–2027F): 10.3%

Balance Sheet Strength:

• Net cash position to equity: from (10.8)% in 2024 to (16.8)% in 2027F
• Interest cover: 22.8x (2024) rising to 26.5x (2027F)

Cash Flow:

• Operating cash flow: RMB 1,228m (2024) to RMB 1,827.9m (2027F)
• Ending cash and cash equivalents: RMB 2,979.2m (2024) to RMB 4,454.9m (2027F)

Conclusion: Strong Outlook, Clear Roadmap for Growth

Xtep International Holdings stands out with its strategic multi-brand approach, robust channel discipline, and accelerating expansion of premium brands like Saucony. With a confident management outlook, stable margins, and a healthy balance sheet, Xtep offers an attractive investment opportunity with significant upside potential as it executes its growth strategy through 2027.

Disclosures

This report is prepared by UOB Kay Hian and is intended for informational purposes for institutional and professional investors. Please refer to the full legal disclosures provided by UOB Kay Hian for more information.