20210824-招银国际-特步国际-01368.HK-Stable_2H21E_and_upbeat_long-term_guidance_10页_1mb

Xtep (1368 HK) Company Update Summary

Core Content

Xtep, listed on the Hong Kong Stock Exchange, has been evaluated by CMB International Securities with a BUY rating and an updated Target Price (TP) of HK$18.73, up from the previous TP of HK$18.17. This implies a ~36x FY22E P/E valuation, which is considered justified based on the expected 38% NP CAGR from FY20 to FY23. The stock currently trades at 25x FY22E P/E, indicating potential upside of +46.3%.

Main Points

• 1H21 Performance:

  • Net profit grew by 72% YoY to RMB 427mn, inline with profit alert and CMBI estimates.
  • Sales increased by 12% YoY to RMB 4.1bn, slightly below CMBI estimates.
  • GP margin and OP margin were slightly below estimates, but offset by better-than-expected other income and finance costs.

• 2H21E Outlook:

  • Retail sales growth was temporarily under pressure in early August 2021 due to floods in Chengdu and outbreaks in Nanjing.
  • However, a healthy recovery was observed since late August 2021.
  • Management remains confident in achieving 30%+ listed co sales growth in 2H21E and 9% NP margin for FY21E (equivalent to 11-12% NP margin for the core Xstep brand).

• Long-term Guidance (5 years):

  • Xtep and new brands are projected to achieve RMB 20bn/4bn listed co. sales by FY25E, implying 23% / 30% sales CAGR.
  • CMBIS has only factored in 16% / 18% CAGR, suggesting that the management's guidance is more optimistic.

• Growth Drivers:

  • Expansion into Tier 1 and Tier 2 cities, supported by the launch of the high-end product series XDNA.
  • Lifestyle products are expected to grow faster, accounting for 30% / 40% of volume/sales, with 30-50% higher ASP than performance products.
  • Rapid online sales, potentially accounting for 40% of sales, due to the expansion of channels and platforms such as TikTok and Xiaohongshu.

• New Brands Performance:

  • K-Swiss and Palladium are expected to generate RMB 0.9-1.0bn in sales and RMB 90-100mn in net losses for FY21E.
  • Saucony and Merrell are expected to have RMB 170-180mn in sales and RMB 40-50mn in net losses in FY21E, mainly due to intensified overseas COVID-19 outbreaks.

Key Financial Highlights

Valuation Summary

• SOTP Valuation:

  • Based on FY22E sales of RMB 11,967mn and FY22E net profit of RMB 1,089mn, the SOTP valuation implies a 36x P/E.
  • The core Xstep brand is valued at 32x P/E.
  • K-Swiss and Palladium are valued at 1.5x P/S.
  • Saucony and Merrell JV are valued at 2.0x P/S.

• Upside:

  • The current price is HK$12.80, and the target price is HK$18.73, indicating a 46.3% upside.

Shareholding and Performance

• Shareholding Structure:

  • Mr. Ding Shui Po & Family: 52.28%
  • Amundi Asset Management: 1.96%
  • Templeton Investments: 1.62%
  • Employee Incentive Scheme: 4.01%
  • Free Float: 40.13%

• Share Performance:

  • 1-month: -8.3%
  • 3-month: +65.5%
  • 6-month: +203.6%
  • 12-month: +370.7%

Earnings Revision

• CMBIS Estimates vs Consensus:
  • Revenue is expected to grow from RMB 9,928mn to RMB 10,070mn in FY21E, with a 4.8% increase.
  • Net profit is expected to rise from RMB 850mn to RMB 880mn, with a 15.9% increase.
  • Diluted EPS is projected to increase from RMB 0.334 to RMB 0.346, a 13.2% increase.

Conclusion

Despite some temporary challenges in early 2021, Xtep remains a positive investment with strong long-term growth guidance and improved performance in the second half of the year. The company is expected to benefit from expansion into higher-tier cities, the growth of lifestyle products, and rapid online sales. The updated target price and revised earnings estimates reflect the confidence in Xtep's future performance and valuation potential.