20180823-东英亚洲证券-特步国际-01368.HK-1H18_results_beat_on_strong_turnover_7页_1mb

Xtep International Holdings Ltd. (1368 HK) Equity Research Summary

Core Content

Xtep International Holdings Ltd. is a company engaged in the design, manufacturing, and marketing of sportswear, including footwear, apparel, and accessories. The report provides an analysis of the company's performance and outlook, based on its 1H18 results and updated financial forecasts.

1H18 Results Overview

• Revenue: Increased by 18.1% year-over-year to RMB 2.7 billion, beating both market and OP expectations.
• Net Earnings: Rose by 20.9% year-over-year to RMB 375 million, surpassing OP target by 13.5%.
• Gross Margin (GPM): Flat at 43.7%, compared to 43.9% in 1H17. It is expected to remain stable in 2H18E due to the company's confidence in passing on raw material cost increases to consumers.
• Operating Cash Flow: Improved significantly to RMB 433.8 million, up from RMB 92.4 million in 1H17, mainly due to a shortened accounts receivable (AR) turnover from 164 days to 113 days.
• Interim Dividend: Proposed at HK$10.5 cents, representing a 54.5% payout.

Earnings Forecast and Valuation

• FY18E Revenue: Revised upward by 0.7% to RMB 5.9 billion.
• FY19E Revenue: Revised upward by 1.2% to RMB 6.8 billion.
• FY18E Net Profit: Revised downward by 0.2% to RMB 624.4 million.
• FY19E Net Profit: Revised upward by 0.6% to RMB 746.0 million.
• Diluted EPS: Revised to HK$0.343 for FY18E and HK$0.410 for FY19E.
• Target Price (TP): Revised from HK$7.30 to HK$6.60, reflecting a 16x FY19E P/E versus 18x previously, representing a 44% upside.
• Market Cap: As of 22/08/2018, it was HK$10.2 billion.
• Closing Price: HK$4.57.
• 12 Months High: HK$6.14.
• 12 Months Low: HK$2.49.
• 3M Avg Daily Vol.: 4.94 million shares.
• Issue Shares: 2,242.38 million shares.
• Payout Ratio: Stabilized at 60.0%.
• Yield: Increased to 5.4% for FY19E.
• ROE: Projected to rise to 13.5% for FY19E.
• Net Margin: Expected to reach 10.9% for FY19E.

Key Financial Metrics

Key Drivers of Performance

• Sell-through Growth: Increased sales volume.
• Tag Price Increase: Around 5% uplift in pricing.
• Distribution Efficiency: Higher efficiency in the retail network.

Risks

• E-commerce Competition: Deep discounts on e-commerce platforms.
• Retail Growth: Slower than expected growth in the retail sector.
• Consumer Confidence: Deflated due to a slowing macroeconomic environment.

Near-Term Catalysts

• 3Q18E Operation Update: Expected to provide further insights and potentially drive rerating.

Peer Group Comparison

Conclusion

The report reiterates a BUY rating for Xtep International Holdings Ltd., with a revised target price of HK$6.60, representing a 44% upside from the current closing price of HK$4.57. The company's performance in 1H18 exceeded expectations, driven by improved sell-through, tag price increases, and enhanced distribution efficiency. The forecast for FY18E and FY19E is cautiously optimistic, with revenue and net profit expected to grow by 16.2% and 14.7% respectively. The company's financial metrics are generally stable, with an improved operating cash flow and a consistent payout ratio. However, risks such as intense e-commerce competition, slower retail growth, and a weak macroeconomic environment could affect future performance. Near-term catalysts include the 3Q18E operation update.