20210319-招银国际-特步国际-01368.HK-Solid_turnaround_to_drive_re-rating_8页_1mb

Xtep (1368 HK) Company Update Summary

Core Content

Xtep, listed on the Hong Kong Stock Exchange, is undergoing a solid turnaround that is expected to drive further re-rating. The company's performance in FY20 showed a net profit beat due to better cost control, despite a slight miss in gross profit (GP) margin. This was mainly attributed to lower than expected advertising and promotion (A&P) and depreciation and amortization (D&A) expenses.

Key Financial Performance

Revenue and Net Profit

• Revenue (RMB mn): FY19A: 8,183; FY20A: 8,172; FY21E: 9,366; FY22E: 10,679; FY23E: 12,057
• YoY Growth (%): FY19A: 28.2%; FY20A: -0.1%; FY21E: 14.6%; FY22E: 14.0%; FY23E: 12.9%
• Net Profit (RMB mn): FY19A: 728; FY20A: 513; FY21E: 671; FY22E: 863; FY23E: 1,051
• YoY Growth (%): FY19A: 2.3%; FY20A: -31.8%; FY21E: 30.9%; FY22E: 28.5%; FY23E: 21.8%
• EPS (RMB): FY19A: 0.302; FY20A: 0.206; FY21E: 0.269; FY22E: 0.346; FY23E: 0.422

Valuation

• Current Price: HK$3.72
• Target Price (TP): HK$5.84 (+33.7% upside)
• P/E Ratio: FY21E: 12x; FY22E: 9x
• P/B Ratio: FY21E: 1.0x; FY22E: 0.9x
• Yield (%): FY21E: 5.2%; FY22E: 6.7%; FY23E: 8.2%
• ROE (%): FY19A: 10.5%; FY20A: 7.2%; FY21E: 9.0%; FY22E: 10.9%; FY23E: 12.6%

Main Points and Insights

Retail Sales Growth

• Jan-Feb 2021: Retail sales surged by 50% YoY, outperforming the expected 31% growth for 1Q21 and significantly exceeding HSD's 4Q20 growth.
• Drivers of Growth:
  1. Favorable weather
  2. Strong e-commerce momentum
  3. Product upgrades (e.g., "160X" running shoes with carbon fiber plates)
  4. Marketing collaborations (e.g., with Shaolin and Jiang Ziya)
  5. Expansion of larger stores

Inventory and Discount Trends

• Retail Discounts: Improved to ~30% off in Jan-Feb 2021 from 30% to 35% off in 4Q20.
• Inventory Level: Expected to normalize to 4-4.5 months by FY21E, down from less than 5 months in 4Q20.

New Brands and JVs

• Saucony: Confident in its potential, with plans to open 30-50 new stores and an estimated initial loss of ~RMB 50mn in FY21E.
• Palladium: Plans to open 30-50 self-owned stores in FY21E.
• K-Swiss: No large-scale expansion expected before FY22E.
• Losses: Associated losses from new brands and JVs are expected to narrow in FY21E compared to FY20.

Earnings Revisions

• Revised FY21E/22E EPS: Up by 9% and 7%, respectively, due to faster-than-expected growth and better-than-expected GP margin and opex.
• Earnings Growth: FY21E is expected to grow by 30.9%, FY22E by 28.5%, and FY23E by 21.8%.

Key Information

• Shareholding Structure:

  • Mr. Ding Shui Po & Family: 53.89%
  • Templeton Investments: 2.62%
  • Employee Incentive Scheme: 4.01%
  • Free Float: 39.48%

• Stock Performance:

  • 1-month: 3.6%
  • 3-months: 21.2%
  • 6-months: 56.3%
  • 12-months: 60.3%

• Market Cap: HK$9,475 million

• Average 3-month Turnover: HK$27.64 million

• 52-week High/Low: HK$4.35 / HK$2.04

Valuation Table

Financial Summary

Income Statement

• Gross Profit: FY19A: 3,550; FY20A: 3,198; FY21E: 3,808; FY22E: 4,452; FY23E: 5,072
• EBIT: FY19A: 1,234; FY20A: 918; FY21E: 1,140; FY22E: 1,376; FY23E: 1,589
• Net Profit: FY19A: 728; FY20A: 513; FY21E: 671; FY22E: 863; FY23E: 1,051

Cash Flow Summary

• Net Cash from Operating: FY19A: 778; FY20A: 1,166; FY21E: 745; FY22E: 885; FY23E: 1,031
• Net Cash from Investing: FY19A: -2,045; FY20A: -204; FY21E: -140; FY22E: -160; FY23E: -181
• Net Cash from Financing: FY19A: 1,039; FY20A: -309; FY21E: -348; FY22E: -457; FY23E: -571
• Net Change in Cash: FY19A: -227; FY20A: 652; FY21E: 257; FY22E: 268; FY23E: 280

Balance Sheet

• Non-current Assets: FY19A: 3,057; FY20A: 2,927; FY21E: 2,686; FY22E: 2,491; FY23E: 2,350
• Fixed Assets: FY19A: 662; FY20A: 788; FY21E: 839; FY22E: 899; FY23E: 977
• Intangible Assets & Goodwill: FY19A: 1,738; FY20A: 1,499; FY21E: 1,258; FY22E: 1,017; FY23E: 776

Conclusion

Xtep is showing signs of a strong recovery, driven by robust retail sales growth, improved inventory levels, and better cost control. The company is confident in its core brand's performance, with a projected growth of 10-15% in FY21E-23E. The updated target price reflects the improved earnings estimates and attractive valuation, with a BUY recommendation. The key drivers of growth include favorable weather, e-commerce momentum, product upgrades, and marketing strategies, along with the expansion of larger stores. The associated losses from new brands and JVs are expected to narrow in FY21E, further improving the company's financial outlook.