Xtep (1368 HK) Company Update Summary
Core Content and Key Highlights
Xtep, a Chinese sportswear company, has shown signs of recovery and robust guidance in its FY23E (Financial Year 2023) performance, leading to a revised target price and a "BUY" recommendation.
- CNY Recovery: Retail sales growth during the 2023 Chinese New Year (CNY) season reached $20%+$, significantly better than the same period last year. Retail discounts improved to 25-30%, which is about 1-2ppt better than the previous year.
- Guidance and Profitability: Despite previous estimates being cut, the FY23E guidance is considered robust, with management projecting 20%+ retail sales growth and mid-teens listed company level growth. The company is also forecasting a net profit margin similar to FY21, driven by improved gross profit margins and operational cost control.
- Inventory Levels: Inventory levels have improved significantly, with the ratio expected to return to normal by 4Q23E. The company is targeting a reduction to 4 months by the end of 4Q23E, down from 5.5 months in 4Q22. After the CNY clearance, the ratio could fall to around 5 months in 2Q23E.
- Target Price and Valuation: The target price is revised to HK$11.52, up from HK$10.52. The current price is HK$9.15, and the company is trading at 17x FY23E P/E, which is seen as attractive compared to peers like Anta and Li Ning, which trade at 28x P/E.
- New Brands: New brands like Saucony and K-swiss are performing well, with Saucony's sales doubling in FY22E and potential for another 100% growth in FY23E. K-swiss also showed strong performance with sales per store reaching RMB 300-400K. The net losses from all four new brands are expected to be under RMB 150mn in FY23E.
- Share Performance: The stock has had mixed performance over the past year, with a 12-month return of -29.5% in absolute terms and -20.9% relative to the market.
Key Financial Metrics
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue (RMB mn) |
8,172 |
10,013 |
12,523 |
14,395 |
16,447 |
| YoY growth (%) |
-0.1 |
22.5 |
25.1 |
15.0 |
14.3 |
| Net income (RMB mn) |
513 |
908 |
964 |
1,237 |
1,545 |
| EPS (RMB) |
0.206 |
0.355 |
0.372 |
0.470 |
0.586 |
| YoY growth (%) |
-31.6 |
72.1 |
4.8 |
26.1 |
24.9 |
| P/E (x) |
37.3 |
21.3 |
20.4 |
16.7 |
13.4 |
| P/B (x) |
2.7 |
2.4 |
2.4 |
2.3 |
2.1 |
| Yield (%) |
1.5 |
2.8 |
2.5 |
3.6 |
4.5 |
| ROE (%) |
7.0 |
11.4 |
11.4 |
13.7 |
15.8 |
| Net gearing (%) |
Net cash |
Net cash |
Net cash |
Net cash |
Net cash |
Earnings Revisions
| Metric |
CMBIGM Estimate |
Consensus |
Diff (%) |
| Revenue (RMB mn) |
12,523 |
12,873 |
-2.7% |
| Gross profit (RMB mn) |
5,226 |
5,338 |
-2.1% |
| EBIT (RMB mn) |
1,490 |
1,586 |
-6.1% |
| Net profit att. (RMB mn) |
964 |
1,060 |
-9.0% |
| Diluted EPS (RMB) |
0.372 |
0.410 |
-9.3% |
| Gross margin (%) |
41.7% |
41.5% |
+0.3ppt |
| EBIT margin (%) |
11.9% |
12.3% |
-0.4ppt |
| Net profit att. margin (%) |
7.7% |
8.2% |
-0.5ppt |
Valuation Comparison
| Company |
Ticker |
Rating |
12m TP (HK$) |
Price (HK$) |
Up/Downside (%) |
Mkt. Cap (HK$ mn) |
P/E (x) |
P/B (x) |
ROE (%) |
PEG (x) |
Yield (%) |
| Xstep Intl |
1368 HK |
BUY |
11.52 |
9.15 |
+25.9% |
24,126 |
20.4 |
16.7 |
13.5 |
1.1 |
2.5 |
| Anta Sports |
2020 HK |
BUY |
128.94 |
113.80 |
+13% |
308,810 |
35.7 |
27.9 |
25.5 |
2.7 |
1.2 |
| Li Ning |
2331 HK |
BUY |
73.08 |
69.00 |
+6% |
181,740 |
33.9 |
27.6 |
26.1 |
2.0 |
0.9 |
| 361 Degrees |
1361 HK |
NR |
n/a |
3.43 |
n/a |
7,092 |
8.2 |
7.0 |
10.3 |
0.6 |
4.3 |
| Topsports |
6110 HK |
NR |
n/a |
7.44 |
n/a |
46,137 |
18.2 |
14.8 |
21.3 |
2.8 |
4.3 |
| Pou Sheng |
3813 HK |
NR |
n/a |
0.92 |
n/a |
4,900 |
27.4 |
7.2 |
(3.2) |
0.9 |
0.6 |
| China DX |
3818 HK |
NR |
n/a |
0.40 |
n/a |
2,326 |
n/a |
11.4 |
(14.0) |
0.0 |
2.9 |
Operating Numbers and Segment Performance
| Segment |
FY22E (RMB mn) |
FY23E (RMB mn) |
FY24E (RMB mn) |
| Shoes |
7,063 |
7,977 |
9,272 |
| Apparel |
5,248 |
6,193 |
6,936 |
| Accessories |
211 |
226 |
240 |
| Total Sales |
12,523 |
14,395 |
16,447 |
| Segment |
FY22E Growth (%) |
FY23E Growth (%) |
FY24E Growth (%) |
| Shoes |
19.1% |
12.9% |
16.2% |
| Apparel |
35.0% |
18.0% |
12.0% |
| Accessories |
7.0% |
7.0% |
6.0% |
| Total Sales Growth |
25.1% |
15.0% |
14.3% |
Strategic Developments
- New Brand Expansion: Saucony and K-swiss are showing promising growth. Saucony's sales are expected to grow by 100% in FY23E, and the company is aiming to roll out the franchise model with about 1/3 and 2/3 of the stores managed by existing and new distributors.
- Store Expansion: The company plans to open between 50 and 100 new stores in FY23E, contributing to growth.
- Inventory Management: The company is on track to reduce its inventory to around 4 months by 4Q23E, with further reductions expected post-CNY clearance.
Conclusion
Xtep has demonstrated resilience and a strong recovery in the CNY season, with robust guidance and improved inventory management. The company's performance, especially in the core brand and new brand segments, has been positive, and its valuation is considered attractive. The "BUY" recommendation is maintained with an increased target price, reflecting confidence in its future performance and growth potential.
