Xtep (1368 HK) Company Update Summary
Core Content
Xtep (1368 HK) has delivered an impressive 4Q20 performance, outperforming peers with faster retail sales growth and improved inventory levels. This has led to a re-rating expectation and a revised target price of HK$5.09, based on a 14x FY22E P/E ratio.
Main Points
- 4Q20 Performance:
- Retail sales growth exceeded expectations, beating CMBI's estimate of 5% YoY.
- Growth accelerated from the previous quarter and outperformed Anta's LSD growth.
- The growth was attributed to brand upgrades, marketing strategies, and store expansion.
- Inventory Management:
- Inventory days improved to less than 5 months, despite stable retail discounts at 30%–35%.
- This is better than Anta's inventory level and indicates improved efficiency.
- Valuation:
- Xtep is currently trading at 14x/11x FY21E/22E P/E.
- The historical discount of ~70% (vs 5 years average of 50%) is considered unjustified given the strong performance.
- The analysis suggests that discounts may narrow to ~50% if core brand fundamentals continue to improve in FY21E.
- Earnings Estimates:
- Adjusted FY20E/21E/22E EPS estimates by -1%/+5%/+6% respectively.
- Revised estimates reflect a worse-than-expected sales decline for K-swiss and Palladium, and a faster recovery for Xtep's core brand.
- Target Price and Rating:
- Maintained a BUY rating.
- Raised target price to HK$5.09 from HK$3.63, representing a +33.7% upside from current price (HK$3.81).
Key Financial Metrics (YE 31 Dec)
| Metric |
FY18A |
FY19A |
FY20E |
FY21E |
FY22E |
| Revenue (RMB mn) |
6,383 |
8,183 |
8,109 |
9,252 |
10,204 |
| YoY growth (%) |
24.8 |
28.2 |
-0.9 |
14.1 |
10.3 |
| Net income (RMB mn) |
657 |
728 |
446 |
617 |
810 |
| EPS (RMB) |
0.295 |
0.302 |
0.179 |
0.248 |
0.325 |
| YoY growth (%) |
60.6 |
2.3 |
-40.7 |
38.3 |
31.4 |
| P/E (x) |
11.3 |
11.3 |
19.0 |
13.8 |
10.5 |
| P/B (x) |
1.4 |
1.2 |
1.2 |
1.2 |
1.1 |
| Yield (%) |
5.2 |
5.2 |
3.2 |
4.4 |
5.7 |
| ROE (%) |
12.3 |
11.8 |
6.4 |
8.5 |
10.7 |
| Net gearing (%) |
Net cash |
Net cash |
Net cash |
Net cash |
Net cash |
Market Position and Shareholding
- Market Cap: HK$9,704 million
- Shareholding Structure:
- Mr. Ding Shui Po & Family: 53.89%
- Templeton Investments: 2.62%
- Employee Incentive Scheme: 4.01%
- Free Float: 39.48%
Share Performance
| Period |
Absolute Return (%) |
Relative Return (%) |
| 1-month |
21.3 |
13.3 |
| 3-months |
35.1 |
15.3 |
| 6-months |
63.5 |
43.6 |
| 12-months |
-14.2 |
-12.7 |
Competitor Performance
- Nike China Sales:
- 1Q18: +19.0%
- 4Q18: +31.0%
- 1Q20: -4.0%
- Adidas China Sales:
- 1Q18: +26.0%
- 4Q18: +23.0%
- 1Q20: -58.0%
- Anta Brand Sales:
- 4Q19: +ve HSD
- 1Q20: -ve 20%-25%
- FILA Brand Sales:
- 4Q19: +ve HSD
- 1Q20: -ve MSD
- Li Ning Group Sales:
- 4Q19: +ve HSD
- 1Q20: -ve MSD
- 361 Degrees Sales:
- 4Q19: +ve HSD
- 1Q20: -ve 20%-25%
Earnings Revision
| Metric |
New Estimate |
Old Estimate |
Diff (%) |
| Revenue (RMB mn) |
8,109 |
8,309 |
-2.4% |
| Gross Profit (RMB mn) |
3,222 |
3,331 |
-3.3% |
| EBIT (RMB mn) |
881 |
887 |
-0.6% |
| Net Profit (RMB mn) |
446 |
449 |
-0.7% |
| Diluted EPS (RMB) |
0.179 |
0.180 |
-0.7% |
| Gross Margin (%) |
39.7% |
40.1% |
-0.4ppt |
| EBIT Margin (%) |
10.9% |
10.7% |
+0.2ppt |
| Net Profit Margin (%) |
5.5% |
5.4% |
+0.1ppt |
Valuation Comparison
| Company |
Ticker |
Rating |
12m TP (HK$) |
Price (HK$) |
Upside/Downside |
Market Cap (HK$mn) |
P/E (x) |
P/B (x) |
ROE (%) |
Yield (%) |
| Xstep Intl |
1368 HK |
BUY |
5.09 |
3.81 |
+33.7% |
9,704 |
19.0 |
1.1 |
11.8 |
3.2 |
| Anta Sports |
2020 HK |
BUY |
150.98 |
129.50 |
+17% |
350,081 |
56.1 |
12.2 |
23.0 |
0.6 |
| Li Ning |
2331 HK |
BUY |
36.52 |
50.80 |
-28% |
126,448 |
65.9 |
12.4 |
19.8 |
0.4 |
| 361 Degrees |
1361 HK |
NR |
n/a |
1.24 |
n/a |
2,564 |
5.3 |
0.3 |
5.8 |
6.7 |
Key Assumptions
| Segment |
FY18A (RMB mn) |
FY19A (RMB mn) |
FY20E (RMB mn) |
FY21E (RMB mn) |
FY22E (RMB mn) |
| Shoes |
3,925 |
4,653 |
4,823 |
5,584 |
6,209 |
| Apparel |
2,327 |
3,344 |
3,110 |
3,484 |
3,797 |
| Accessories |
131 |
185 |
176 |
185 |
198 |
| Total |
6,383 |
8,183 |
8,109 |
9,252 |
10,204 |
| Segment Growth (%) |
FY18A |
FY19A |
FY20E |
FY10E |
FY22E |
| Shoes |
20.5 |
18.6 |
3.7 |
15.8 |
11.2 |
| Apparel |
32.2 |
43.7 |
-7.0 |
12.0 |
9.0 |
| Accessories |
36.6 |
41.0 |
-5.0 |
5.0 |
7.0 |
| Total |
24.8 |
28.2 |
-0.9 |
14.1 |
10.3 |
| Sales Network |
FY18A |
FY19A |
FY20E |
FY21E |
FY22E |
| Xstep |
5,580 |
5,279 |
4,962 |
5,012 |
5,112 |
| Xstep Kids |
450 |
850 |
833 |
891 |
980 |
| Oversea Stores |
200 |
250 |
250 |
250 |
300 |
| Total |
6,230 |
6,379 |
6,045 |
6,153 |
6,393 |
| Operating Margin (%) |
FY18A |
FY19A |
FY20E |
FY21E |
FY22E |
| EBIT |
16.4 |
15.1 |
10.9 |
11.7 |
12.9 |
| Effective Tax Rate |
31.4 |
34.8 |
38.0 |
33.0 |
32.0 |
| Net Profit Margin (%) |
10.3 |
8.9 |
5.5 |
6.7 |
7.9 |
Key Insights
- Xtep's performance in 4Q20 was significantly better than industry peers, driven by strategic brand upgrades and store development.
- Inventory management was efficient despite maintaining similar discount levels to previous quarters.
- The valuation discount is expected to narrow as the company's performance continues to improve.
- Earnings estimates were revised upward for FY21E and FY22E due to better-than-expected core brand sales.
- The company is currently undervalued compared to peers, offering an attractive risk-reward ratio.
