20151019-大和证券-特步国际-01368.HK-Initiation__a_step_in_the_right_direction_26页_1mb_1mb

报告摘要

XTEP International (1368 HK) Summary

Core Content and Investment Case

XTEP International (1368 HK) is a leading fashion sportswear brand in China, operating over 7,000 stores nationwide. The company is transitioning from a fashion-focused brand to a functional and performance-driven one, which is expected to enhance its operating margin and support long-term earnings growth.

Target Price: HKD4.60
Current Share Price (16 Oct): HKD3.97 (+15.9%)
Investment Rating: Buy (1)
Valuation: Based on 11.5x 2016E PER, the stock is considered undervalued compared to the sector average of 13x. The company is expected to see its valuation increase due to its focus on functional products and performance in the running/marathon segment.

Key Growth Drivers

Product+ - Fashion Meets Function

XTEP has upgraded its product mix with more functional items, which carry higher ASPs.
Functional products now account for 40–50% of 2Q16 orders, up from less than 30% in 2015.
This shift is expected to improve operating margins from 16.9% in 2014 to 19.4% in 2017.
The company has introduced advanced technologies like "Air Comfort" and "reactive coil" even into its mid-end product lines.

Sports+ - Monetising Ancillary Income Streams

The company is leveraging its sponsorship of marathons and other sporting events to drive additional revenue.
The joint venture with Wisdom (1661 HK) is expected to add 1–4% to XTEP's 2016E EPS, though this has not yet been fully factored into market estimates.

Internet+ - O2O Sales Platform

XTEP is developing an online-to-offline (O2O) sales platform to boost growth.
E-commerce sales are expected to contribute significantly, with a higher margin profile than traditional retail channels.

Financial Forecasts (CNY)

Metric	2015E	2016E	2017E
Revenue (m)	5,264	5,835	6,373
Operating Profit (m)	939	1,089	1,237
Net Profit (m)	615	720	825
Core EPS (fully-diluted)	0.280	0.328	0.376
Net Profit Margin	11.7%	12.3%	12.9%
Operating Profit Margin	17.8%	18.7%	19.4%
Gross-Profit Margin	41.8%	42.8%	43.2%

Valuation and Rerating Potential

Current PER (2016E): 9.9x (6.4x ex-net cash)
Target PER (2016E): 11.5x
Sector Average PER: ~13x
Expected Rerating: The company is expected to see its valuation increase as it aligns with sector averages due to its strong performance in the running/marathon category and improved product mix.

Earnings Revisions

Daiwa's 2015–2017 earnings forecasts are 3–11% above Bloomberg consensus.
The rerating is anticipated when the 2Q16 trade fair results are announced, which are expected to show sequential improvement in performance due to the increased focus on functional products.

Risks

Channel Inventory Build-Up: Risk of overstocking if demand for sportswear products is lower than expected.
Aggressive Penetration by Global Brands: Increased competition from global sportswear brands in lower-tier cities.

Company Profile

Established in 2002
Listed on the Hong Kong Stock Exchange on 3 June 2008
Focus on design, development, manufacturing, sales, and brand management of sports footwear, apparel, and accessories

Strategic Shifts

Product Strategy: Emphasizing functional products and performance in the running segment
Market Positioning: Aligning with the growing trend of health consciousness and urbanization in China
Celebrity Endorsements: Leveraging partnerships with celebrities like Nicholas Tse, NANA, and Li Yifeng to maintain a presence in the fashion-sports segment

Key Financial Metrics

Profit and Loss (CNYm)

Metric	2015E	2016E	2017E
Operating Profit	939	1,089	1,237
Net Profit	615	720	825
Pre-Tax Profit	891	1,044	1,196

Key Ratios (%)

Metric	2015E	2016E	2017E
Gross-Profit Margin	41.8	42.8	43.2
EBITDA Margin	18.8	19.6	20.3
Net Profit Margin	11.7	12.3	12.9
ROE	12.6	13.7	14.5
ROAA	7.6	8.4	9.1
Net Interest Cover (x)	19.9	24.5	30.3
Net Dividend Payout	50.0	50.0	50.0

Share Price Performance

Metric	Value
12-Month Range (HKD)	2.20–4.06
Market Cap (USDbn)	1.11
3M Avg Daily Turnover (USDm)	2.14
Shares Outstanding (m)	2,177
Major Shareholder	Mr. Ding Shui Po (60.9%)

Outlook and Catalysts

Growth Outlook: XTEP is expected to post its first positive YoY net profit growth in 2015 after a low base in 2014. Growth is forecasted at 29% in 2015, 17% in 2016, and 15% in 2017.
Catalysts for Rerating:
- Better-than-forecast 2Q16 sales fair results
- Confirmation of improved SSS growth and margin expansion
- Inclusion of incremental profit from the Wisdom JV
- Increased stock market buying as the company's market cap exceeds USD1bn

Appendix

Company Background: XTEP is a major player in the Chinese sportswear market with a strong retail presence and strategic focus on functional products.
Balance Sheet Highlights:
- Strong cash reserves
- Increasing current assets and equity
- Stable current ratio (around 3.1x)
- Growing net cash from operations
Free Cash Flow Yield: Expected to improve from 6.2% in 2010 to 9.6% in 2017.

Conclusion

XTEP International is undergoing a strategic shift from a fashion-centric brand to a functional/performance-focused one, which is expected to improve its margins and valuation. The company is well-positioned to benefit from the growing interest in sports and health in China, and its focus on the running/marathon segment, along with its e-commerce initiatives and ancillary income streams, supports its growth outlook. While there are risks such as inventory build-up and competition from global brands, the company's strong balance sheet and improved product mix suggest a positive outlook for the next 12 months.

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