20250319-招银国际-特步国际-01368.HK-Building_a_more_all-round_company_in_long_run_9页_1mb

Xtep (1368 HK) Summary

Core Content and Key Information

Xtep (1368 HK) is a Chinese sportswear company that is undergoing a DTC (Direct-to-Consumer) transformation as part of its long-term strategy to build a more all-round company. The FY24 results were in line with BBG estimates and management guidance, and the 2025 YTD performance was also in line with expectations. The company's FY25E guidance is conservative, but with adjustments for DTC transformation, it may show slightly faster growth. Despite this, the analyst remains positive about Xtep, maintaining a "BUY" rating and trimming the target price to HK$7.20 based on a 14x FY25E P/E ratio.

Main Points

Financial Performance

• Revenue (RMB mn): FY23A: 14,346; FY24A: 13,577; FY25E: 14,312; FY26E: 15,249; FY27E: 16,363
• YoY Growth (%): FY23A: 10.9; FY24A: -5.4; FY25E: 5.4; FY26E: 6.5; FY27E: 7.3
• Net Profit (RMB mn): FY23A: 1,033.0; FY24A: 1,305.5; FY25E: 1,372.0; FY26E: 1,569.5; FY27E: 1,839.3
• Net Profit Growth (%): FY23A: 9.4; FY24A: 19.4; FY25E: 3.6; FY26E: 12.6; FY27E: 17.2
• P/E (x): FY23A: 13.6; FY24A: 11.4; FY25E: 11.0; FY26E: 9.7; FY27E: 8.3
• P/B (x): FY23A: 1.6; FY24A: 1.6; FY25E: 1.7; FY26E: 1.5; FY27E: 1.4
• Yield (%): FY23A: 3.6; FY24A: 11.6; FY25E: 4.5; FY26E: 5.1; FY27E: 6.0
• ROE (%): FY23A: 12.0; FY24A: 14.8; FY25E: 15.8; FY26E: 17.3; FY27E: 18.3
• Net gearing (%): FY23A: 7.1; FY24A: 7.9; FY25E: 2.3; FY26E: 5.2; FY27E: 7.0

Earnings Revision

• Revenue (RMB mn): FY25E: -8.0%; FY26E: -9.8%; FY27E: n/a
• Gross Profit (RMB mn): FY25E: -7.9%; FY26E: -9.2%; FY27E: n/a
• EBIT (RMB mn): FY25E: -4.4%; FY26E: -7.5%; FY27E: n/a
• Net Profit (RMB mn): FY25E: -2.4%; FY26E: -5.5%; FY27E: n/a
• Diluted EPS (RMB): FY25E: -6.0%; FY26E: -10.5%; FY27E: n/a
• Gross Margin: FY25E: +0.1ppt; FY26E: +0.3ppt; FY27E: n/a
• EBIT Margin: FY25E: +0.5ppt; FY26E: +0.4ppt; FY27E: n/a
• Net Profit Margin: FY25E: +0.6ppt; FY26E: +0.5ppt; FY27E: n/a

DTC Transformation

• Xtep has initiated its DTC transformation, which is a strategic move towards becoming a more all-round company.
• The Chairman and CEO, Mr. Ding, noted that the company has the necessary skills from running the DTC model for Saucony.
• The company plans to repurchase about 400 to 500 stores from distributors, which is approximately 8% to 10% of total stores.
• This transformation may lead to a short-term drag on sales due to the cancellation of revenue and net profit from trade fair sales orders, affecting group-level sales by 2-3% in FY25E and 4-5% in FY26E.
• Long-term, the transformation is expected to be beneficial as it could lead to improved margins and customer experience.

Saucony Performance

• Saucony's annual sales have exceeded the RMB 1bn benchmark.
• The brand's growth momentum is strong, and management is confident about its future performance.
• Saucony aims for a 30%+ sales growth in FY25E, and is targeting to double sales per store in 3 to 5 years, implying a CAGR of 15% to 26%.
• Growth drivers include store expansion, larger store sizes, superior product quality, category expansion, and improved sales per store.
• Management believes the growth could be even healthier once the sales reach the RMB 1bn mark.

Key Growth Drivers

• Store Expansion: Xtep may maintain a flat store count, but Saucony is expected to open 30 new stores in FY25E, including more flagship stores and those in tier-2 or below cities.
• Product Line Expansion: The company is rolling out more running shoes under the 160X to 360X franchise and reforming its apparel offerings to include more running-related items.
• Online Sales: E-commerce growth has been better than offline, and the company is optimistic about potential improvements in retail discounts for online sales.
• Cost Control and Margin Expansion: The company is focusing on cost control, reducing distributor rebates, and improving retail discounts, which should help expand margins.
• Saucony's Performance: Saucony is a strong growth driver, with a high sales growth rate and potential for further expansion and margin improvement.

Valuation and Market Position

• Target Price: HK$7.20 (Previous TP: HK$7.55)
• Current Price: HK$5.69
• Up/Downside: 26.5%
• Market Cap (HK$ mn): 14,992.3
• Average 3-Month Turnover (HK$ mn): 68.6
• 52-Week High/Low (HK$): 6.98/3.97
• Total Issued Shares (mn): 2,634.8

Shareholding Structure

• Mr. Ding Shui Po & Family: 49.2%
• JPMorgan Chase & Co: 4.6%

Share Performance

• 1-Month: 4.4% (Absolute); -2.2% (Relative)
• 3-Month: -3.4% (Absolute); -21.2% (Relative)
• 6-Month: 28.7% (Absolute); -5.8% (Relative)

Industry Comparison

• Xtep is compared to other sportswear companies such as Anta, Li Ning, and international brands like Nike, Adidas, Puma, and Under Armour.
• The analyst notes that Xtep's P/E ratio is undemanding compared to its 8-year average of 15x, and the macroeconomic environment and industry trends are improving, supporting its long-term outlook.

Conclusion

Despite the conservative FY25E guidance, the analyst maintains a "BUY" rating on Xtep, citing the improved macroeconomic environment, positive industry trends, and the company's strategic DTC transformation. The target price is trimmed to HK$7.20 based on a 14x P/E ratio. The company's growth drivers include store expansion, product line improvements, and margin expansion, particularly for the Saucony brand, which is expected to perform strongly. The analyst is confident about the long-term potential of Xtep as it continues to build a more all-round company.