20220117-招银国际-特步国际-01368.HK-Upbeat_guidance_with_multiple_growth_drivers_8页_1mb

Xtep (1368 HK) Company Update Summary

Core Content

Xtep has shown strong growth despite a challenging macroeconomic and pandemic environment. The company has maintained its BUY rating and raised its target price (TP) to HK$16.43, reflecting increased confidence in its performance and future prospects. The TP implies a P/E ratio of ~30x for the group, which is considered reasonable given the 43% net profit CAGR from FY20 to FY23.

Key Growth Drivers

• Retail Sales Growth: Xtep's retail sales grew by 20-25% YoY in 4Q21, accelerating from mid-teens in 3Q21. The growth momentum continued into Jan-TD 2022E with a 30%+ increase.
• Segment Growth:
  • Core Brand: Expected to grow by 25%+ in FY22E, with 30%+ in 1H22E.
  • Kids Segment: Projected to grow by 50%+ in FY22E.
  • New Brands (K-Swiss and Palladium): Expected to grow by 30%+ in FY22E.
  • JV (Saucony & Merrell): Expected to grow by 50%+ in FY22E.
• Inventory and Discounts: Inventory to sales ratio remained at 4 months, and retail discounts were 20-25% off, consistent with 3Q21.
• Sell-Through Rate: Satisfactory at ~80% in 3Q21 and ~60% in 4Q21, better than the industry average.
• Management Changes: A new CEO was appointed for the Xtep brand, with experience from Nike and Topsports, which is seen as positive for channel expansion. The original CEO will lead new brands.

Financial Highlights

Sales Growth and Profit Outlook

• Positive Profit Alert: Xtep reported a 70%+ NP growth in FY21E, driven by more 9th gen. stores, product and brand upgrades, and expansion of Kids and e-commerce segments.
• NP Margin Expansion: The core brand's NP margin increased, and the company expects gradual improvement in both GP and OP margins in FY22E.
• A&P Expenses: Remain at 11-13% of sales.

Valuation and Target Price

• SOTP Valuation:
  • Xstep core brand: 26x FY22E P/E
  • K-Swiss and Palladium: 1.5x FY22E P/S
  • Saucony and Merrell JV: 2.0x FY22E P/S
  • Total: 30x FY22E P/E
• Target Price: HK$16.43, up from HK$15.41, implying a 27.3% upside from the current price of HK$12.90.

Competitor Comparison

Key Assumptions

• Sales by Segment (RMB mn):
  • Shoes: 4,653 (FY19A), 5,047 (FY20A), 6,344 (FY21E), 8,073 (FY22E), 9,424 (FY23E)
  • Apparel: 3,344 (FY19A), 2,964 (FY20A), 3,557 (FY21E), 4,304 (FY22E), 4,949 (FY23E)
  • Accessories: 185 (FY19A), 161 (FY20A), 169 (FY21E), 181 (FY22E), 194 (FY23E)
• Segment Growth (%):
  • Shoes: 18.6%, 8.5%, 25.7%, 27.3%, 16.7%
  • Apparel: 43.7%, -11.4%, 20.0%, 21.0%, 15.0%
  • Accessories: 41.0%, -12.9%, 5.0%, 7.0%, 7.0%
• Operating Leverage:
  • A&P expenses: 11-13% of sales
  • Staff costs: 11.0% to 12.1% of sales
  • Gross margin: 41.5% to 42.7%
  • OP margin: 15.1% to 15.7%
  • Effective tax rate: 34.8% to 30.0%
  • Net profit margin: 8.9% to 10.4%

Summary

Xtep (1368 HK) has demonstrated strong performance and growth in 4Q21, with retail sales growth of 20-25% YoY. The company has revised its sales growth target for FY22E to 25%+ and maintains a BUY rating with an updated target price of HK$16.43, reflecting a 30x P/E valuation. The growth is attributed to increased store numbers, product and brand upgrades, and expansion into the Kids and e-commerce segments. The management changes are viewed positively, with the new CEO likely to enhance channel expansion. Xtep is expected to outperform the industry with a satisfactory sell-through rate and a strong NP margin expansion. The company's financials show a consistent upward trend in profitability and margins, with a projected 43% NP CAGR from FY20 to FY23. The valuation is competitive compared to peers, with a reasonable P/E and P/B ratio.