20220824-招银国际-特步国际-01368.HK-Inventory_not_a_worry_and_guidance_maintained_11页_1mb

Xtep (1368 HK) Company Update Summary

Core Content

Xtep, listed on the Hong Kong Stock Exchange, has maintained its FY22E guidance, showing strong sales growth and a slightly higher operating expense (opex) due to brand-building efforts for its kids' line. The company is currently trading at a PEG of 1.0x, indicating potential for growth relative to its earnings. The target price remains at HK$17.04, implying a 27x FY23E P/E, and the recommendation is to maintain the BUY rating.

Main Points

• Sales Growth:

  • 1H22E sales increased by 37% YoY to RMB 5.68bn, slightly above CMBI estimates.
  • Retail sales growth for the core brand accelerated in July–August 2022, reaching 20–30% and 30%, respectively, compared to 10% and 30–35% in May–June 2022.
  • This growth is the best among its peers, including Li Ning, Anta, and FILA.

• Net Profit:

  • Net profit rose by 38% YoY to RMB 590mn, also above CMBI estimates.
  • The net profit margin may decrease by 0.3ppt–0.5ppt in FY22E due to higher opex for Xtep kids' brand.

• Inventory:

  • Inventory days increased to 106 in 1H22E (up 29 days from 77 in FY21), attributed to trade fair order cuts and delayed shipments for K&P.
  • Despite the increase, the company believes this is a reasonable amount to capture future consumer demand.

• Guidance:

  • The company raised its FY22E sales growth target to 30% from 25%–30%.
  • The core brand's sales growth is expected to be robust due to the recovery from trade fair order adjustments and the growth in the kids' segment, driven by the compulsory inclusion of physical education in schools.
  • Store expansion and per store area growth are also contributing to sales growth.

• Valuation:

  • The target price is HK$17.04, based on a SOTP valuation with a 23x FY23E P/E for Xstep and 2.0x P/S for the Saucony and Merrell JV.
  • The company's valuation is considered reasonable, given the 24% net profit CAGR from FY21 to FY24E.

Key Financials

Earnings Revision

Earnings Revision vs Consensus

Results Summary

Operating Numbers

• Sales Growth Trend:

  • Xtep's core brand showed strong growth in the first half of 2022.
  • The kids' segment experienced significant growth, with an 80%+ increase in 1H22E.
  • Store expansion and per store area growth are key drivers for future sales.

• Segment Performance:

  • Mass market and athleisure segments contributed significantly to overall sales.
  • Professional sports segment also showed growth, though at a lower rate compared to other segments.

Shareholding and Performance

• Share Performance:
  • 1-month return: 2.1% (Absolute), 7.1% (Relative)
  • 3-month return: 25.2% (Absolute), 32.0% (Relative)
  • 6-month return: 3.2% (Absolute), 23.5% (Relative)
  • 12-month return: 15.2% (Absolute), 45.6% (Relative)

Key Assumptions

Conclusion

Xtep's performance in the first half of 2022 was in line with expectations, with strong sales growth and net profit performance. The company is maintaining its guidance for FY22E, with a focus on expanding its core brand and kids' segment. The target price remains at HK$17.04, implying a 27x FY23E P/E, which is considered reasonable given the company's growth trajectory. The company's valuation is attractive, and the BUY rating is maintained based on its strong fundamentals and growth potential.