20210715-招银国际-特步国际-01368.HK-Guidance_raised_after_positive_profit_alert_10页_1mb

Xtep (1368 HK) Equity Research Summary

Core Content

Xtep, a Chinese sportswear company, has reported positive profit and revised guidance, leading to an updated target price and continued "BUY" recommendation. The company's performance has been driven by multiple factors, including strong re-orders, accelerated e-commerce growth, successful restructuring of its kids brand, and improved gross profit margins.

Main Points

• Positive Profit Alert: Xtep's profit alert exceeded expectations, indicating strong performance.
• Guidance Raised: Management has increased FY21E sales growth guidance to 20% YoY from ~15%, with confidence in achieving this due to potential re-orders in 3Q21E, robust trade fair growth in 4Q21E, and better marketing strategies.
• Sales Growth by Segment:
  • Xtep Core Brand: Sales in 1H21E were better than 1H19, with NP margin rising to 13.5%.
  • Kids Segment: Strong growth following restructuring.
  • E-commerce: Accelerated growth due to increased A&P and digitalization efforts.
• Profitability: Net profit for the Group and Xtep core brand in 1H21E was higher than in 1H19, and the group's NP margin increased to 9.9% in 1H21E from 6.3% in FY20.
• Trade Fair Performance: Trade fair sales in 1Q22E showed the fastest growth in history, partly due to a low base.
• Long Term Growth: Xtep has a 20% sales growth target for the next five years, and potential growth from new brands (K-Swiss & Palladium) and joint ventures (Saucony) is expected.
• Valuation:
  • Target Price: HK$18.17 (up from HK$16.32), implying a 36x FY22E P/E.
  • Current P/E: 27x FY22E P/E.
  • Discount to Peers: Xtep is trading at ~40% discount to Anta and Li Ning.
• Earnings Estimates:
  • FY21E/22E/23E EPS estimates were revised up by 22%/25%/29%, higher than the consensus.
• Performance by Brand Segment:
  • Xtep core brand and its segments (mass market, athleisure, professional sports) show consistent growth and margin improvement.
  • K-Swiss and Palladium are expected to contribute positively, while Saucony and Merrell JV show mixed performance.
• Market Position: Xtep's market cap is HK$35,963 million, and it is considered a strong player in the sportswear sector with a competitive edge.

Key Information

• Shareholding Structure:
  • Mr. Ding Shui Po & Family: 52.27%
  • Templeton Investments: 2.38%
  • JP Morgan Chase: 4.62%
  • Employee Incentive Scheme: 4.01%
  • Free Float: 36.72%
• Stock Performance:
  • 12-month price performance: +474.5% absolute, +429.5% relative.
• Valuation Method: Sum of the parts (SOTP) valuation is used, which implies a 36x FY22E P/E.
• Peer Comparison:
  • Anta Sports (2020 HK): 52.3x FY1E P/E, 40.3x FY2E P/E.
  • Li Ning (2331 HK): 64.1x FY1E P/E, 50.2x FY2E P/E.
  • 361 Degrees (1361 HK): 15.2x FY1E P/E, 13.6x FY2E P/E.
  • Topsports (6110 HK): 17.8x FY1E P/E, 15.1x FY2E P/E.
• Valuation Metrics:
  • P/B (Price-to-Book): 3.7x for FY21E, declining to 3.5x for FY22E.
  • ROE (Return on Equity): Increased from 10.5% in FY19 to 15.3% in FY23E.
  • Net gearing: Net cash in all periods.
• Earnings Revision:
  • Revenue, gross profit, EBIT, and net profit estimates for FY21E to FY23E have been revised upward.
  • The CMBIS estimates are higher than the consensus, with the largest difference in net profit att. margin (24% vs. 32.2%).

Summary

Xtep has demonstrated strong performance with a positive profit alert and revised guidance, indicating a beat in expectations. The company's growth is supported by robust re-orders, e-commerce expansion, brand elevation, and improved margins. Despite a slowdown in 2Q21E retail sales growth compared to 1Q21E, the momentum remains positive. The management is optimistic about achieving a 20% YoY sales growth in FY21E and a long-term 20% growth target. The updated target price is HK$18.17, and the company is currently trading at 27x FY22E P/E, with a significant discount to its peers. The SOTP valuation method supports the target price, and the CMBIS estimates are consistently higher than the consensus, highlighting the potential for further upside.