20220408-招银国际-特步国际-01368.HK-Prudent_on_2Q22_but_guidance_maintained_6页_1mb

Xtep (1368 HK) Company Update Summary

Core Content

Xtep, listed on the Hong Kong Stock Exchange, has shown resilience in its first-quarter 2022 (1Q22) performance despite the ongoing challenges posed by the pandemic. The company's management has maintained its full-year 2022 (FY22E) sales growth guidance of 25-30% and the first-half 2022 (1H22E) guidance of 35-45%. However, they have become more cautious regarding the second-quarter 2022 (2Q22E) retail sales, due to disruptions caused by the recent outbreaks of COVID-19 in Shanghai and Jilin, which affected both offline and e-commerce channels. Despite this, management remains optimistic about the potential for a 15-20% retail sales growth in 2Q22E, assuming the outbreaks are controlled by the 5-1 golden week.

Key Financial Highlights

• 1Q22 Retail Sales Growth: 30-35% YoY, slightly above CMBI's estimate of 28%, and an acceleration from 20-25% in 4Q21.
• Inventory Turnover: At 4 months, same as 4Q21.
• Retail Sales Discounts: 25% off, slightly higher than 20-25% off in 4Q21.
• Target Price (TP): HK$16.21, implying a 28x FY22E P/E, unchanged from previous estimates.
• Current Price: HK$11.58.
• Upside Potential: +40.0% from current price to TP.

Earnings Summary

Stock Performance

• Market Cap (HK$ mn): 30,459
• Average 3-Month Turnover (HK$ mn): 192.47
• 52-Week High/Low (HK$): 16.32 / 4.58
• Total Issued Shares (mn): 2,630.3

Shareholding Structure

Share Performance (Bloomberg)

Key Assumptions

• Sales Growth by Segment (YoY):

  • Shoes: 26.5% (FY22E)
  • Apparel: 25.0% (FY22E)
  • Accessories: 7.0% (FY22E)
  • Total: 25.5% (FY22E)

• Sales Network:

  • Xstep: 6,461 (FY22E)
  • Xstep Kids: 1,297 (FY22E)
  • Overseas Stores: 300 (FY22E)
  • Total: 6,959 (FY22E)

• Operating Expenses:

  • A&P / Sales: 10.5% (FY22E)
  • Staff Costs / Sales: 10.5% (FY22E)
  • R&D / Sales: 2.4% (FY22E)
  • D&A / Sales: 1.5% (FY22E)
  • Selling & Distribution Costs / Sales: 19.0% (FY22E)
  • Admin Expenses / Sales: 11.4% (FY22E)
  • Total Operating Expenses / Sales: 30.4% (FY22E)

• OP Margins: 14.4% (FY22E)

Valuation Comparison (Peers)

Financial Summary

Income Statement (YE 31 Dec)

Cash Flow Summary (YE 31 Dec)

Balance Sheet (YE 31 Dec)

Main Viewpoints

• Retail Sales Performance: Xtep's 1Q22 retail sales growth was robust and inline with expectations, though management has become more conservative for 2Q22E due to the impact of the pandemic.
• Valuation: Despite the cautious outlook for 2Q22E, Xtep's valuation remains attractive at 20x FY22E P/E.
• Guidance: The company has maintained its FY22E and 1H22E sales growth guidance, factoring in the recent outbreaks and limited support for distributors.
• Target Price: Maintained at HK$16.21, based on SOTP valuation, implying a 28x FY22E P/E, which is considered reasonable given the company's historical net profit CAGR of 26% from FY21 to FY24E.
• Financial Health: The company maintains a net cash position, with a positive net change in cash in FY20A and FY21A, though this has turned negative in FY22E. The cash at the end of the year has decreased slightly, indicating a potential need for careful cash management in the coming quarters.

Conclusion

Xtep has demonstrated strong performance in the first quarter of 2022, maintaining its growth guidance despite the challenges posed by the pandemic. The company's retail sales growth has been resilient, with a slight slowdown in offline sales but a strong e-commerce performance. The target price remains unchanged, reflecting confidence in its valuation and growth prospects. While the company faces challenges in the second quarter, the management is optimistic about recovery, especially with the golden week approaching. The financial health of Xtep remains stable, with a net cash position and a reasonable P/E ratio, supporting the BUY rating.