20211020-招银国际-特步国际-01368.HK-Slight_beat_in_3Q21_and_guidance_maintained_8页_1mb

Xtep (1368 HK) Company Update Summary

Core Content

Xtep (1368 HK) reported a slight beat in its 3Q21 retail sales growth despite facing multiple industry headwinds, including bad weather, a COVID-19 outbreak, and weak economic growth. The company's resilience was attributed to its mass market positioning with a price range of RMB 300-500 and the rising popularity of functional and domestic fashion products such as 160X 2.0 and Xtep x Shaolin. The company also maintained its guidance for 2H21E, indicating a stable outlook.

Main Points

• Retail Sales Performance:

  • 3Q21 retail sales grew by mid-teens, beating CMBI's estimate of 8%.
  • Sales growth slowed compared to 30-35% in 2Q21, but still outperformed Anta and FILA.
  • MTD retail sales growth in October 2021 was expected to recover significantly, with a projected growth rate of 10%+.
  • Xtep Kids segment showed strong growth, reaching 30%+ MTD in October 2021.

• Inventory and Discounts:

  • Channel inventory remained healthy, with an inventory-to-sales ratio of 4 months, consistent with 2Q21.
  • Retail discounts stayed at 25%-30%, a 5ppt improvement YoY.

• Guidance and 5-Year Plan:

  • Short and long-term guidance remained unchanged.
  • For 2H21E, the company expects a sales growth of 30%, with a group gross profit margin of about 41% and a core brand net profit margin of 11-12%.
  • The 5-year plan projects annual sales growth of 20%+, with 5-10% attributed to ASP adjustments and 10-15% from volume growth via store openings, product expansion, and rising product popularity.

• Target Price and Valuation:

  • The target price was adjusted to HK$15.41, based on SOTP valuation, implying a ~30x FY22E P/E.
  • This is considered attractive compared to the previous 36x P/E, factoring in industry de-rating.
  • The company is expected to achieve a 38% NP CAGR from FY20 to FY23E.

Key Financial Metrics

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%

• Stock Performance:

  • 1-month: -30.7% (Absolute), -32.0% (Relative)
  • 3-months: -34.4% (Absolute), -27.7% (Relative)
  • 6-months: +57.7% (Absolute), +79.7% (Relative)
  • 12-months: +239.4% (Absolute), +225.7% (Relative)

Valuation and Peer Comparison

| Company | Ticker | Rating | 12m TP (LC) | Price (LC) | Up/Downside | Mkt. Cap (HK$ mn) | Year End | P/E (x) | P/B (x) | ROE (%) | 3yrs PEG (x) | Yield (%) |
|--------|--------|--------|-------------|-------------|-------------|------------------|----------|--------|--------|--------|-------------|-------------|-----------|
| Xtep Intl | 1368 HK | BUY | 15.41 | 10.32 | +49.3% | 27,130 | Dec-20 | 24.8 | 20.0 | 2.8 | 2.6 | 9.5 | 24.1 |
| Anta Sports | 2020 HK | BUY | 156.06 | 130.90 | +19% | 353,866 | Dec-20 | 37.3 | 29.1 | 9.6 | 7.8 | 30.5 | 19.8 |
| Li Ning | 2331 HK | BUY | 102.84 | 90.10 | +14% | 224,881 | Dec-20 | 51.0 | 40.3 | 15.6 | 11.9 | 33.2 | 19.8 |
| 361 Degrees | 1361 HK | NR | n/a | 3.86 | n/a | 7,981 | Dec-20 | 11.3 | 9.9 | 0.9 | 0.9 | 7.7 | 0.5 |
| Topsports | 6110 HK | NR | n/a | 9.31 | n/a | 57,733 | Feb-21 | 14.9 | 12.3 | 4.2 | 3.6 | 27.4 | 0.7 |
| Pou Sheng | 3813 HK | NR | n/a | 1.35 | n/a | 7,232 | Dec-20 | 5.2 | 4.1 | 0.7 | 0.6 | 11.6 | 0.1 |
| China DX | 3818 HK | NR | n/a | 0.88 | n/a | 5,181 | Mar-21 | n/a | n/a | n/a | n/a | 16.4 | 0.0 |
| Nike Inc | NKE US | NR | n/a | 159.43 | n/a | 1,962,364 | May-21 | 43.9 | 33.5 | 18.4 | 16.9 | 51.6 | 2.9 |
| Adidas | ADS GY | NR | n/a | 270.55 | n/a | 491,694 | Dec-20 | 35.7 | 27.0 | 7.2 | 6.4 | 24.8 | 0.5 |
| Puma | PUM GY | NR | n/a | 101.60 | n/a | 138,957 | Dec-20 | 51.9 | 35.6 | 7.8 | 6.8 | 15.8 | 0.6 |
| Under Armour | UAA US | NR | n/a | 20.53 | n/a | 69,475 | Dec-20 | 37.9 | 33.4 | 5.0 | 4.3 | 22.0 | (0.2) |
| Lululemon | LULU US | NR | n/a | 417.38 | n/a | 421,338 | Jan-21 | 55.7 | 46.3 | 17.7 | 13.8 | 35.4 | 1.7 |
| Skechers | SKX US | NR | n/a | 43.66 | n/a | 52,908 | Dec-20 | 16.6 | 14.4 | 2.2 | 1.9 | 14.3 | 0.2 |
| Vf Corp | VFC US | NR | n/a | 72.93 | n/a | 222,678 | Mar-21 | 23.0 | 19.4 | 7.4 | 7.0 | 32.9 | 0.4 |
| Columbia | COLM US | NR | n/a | 95.97 | n/a | 49,231 | Dec-20 | 20.7 | 17.7 | 3.5 | 3.0 | 14.5 | 0.4 |
| Wolverine | WWW US | NR | n/a | 31.41 | n/a | 20,081 | Jan-21 | 13.6 | 11.2 | 4.6 | 3.8 | (9.9) | (0.1) |
| Mizuno Corp | 8022 JP | NR | n/a | 2,650.00 | n/a | 4,798 | Mar-21 | 19.8 | 14.9 | 0.7 | 0.7 | 7.5 | 1.4 |
| Asics Corp | 7936 JP | NR | n/a | 2,924.00 | n/a | 37,818 | Dec-20 | 97.8 | 39.3 | 4.1 | 3.8 | 1.7 | (0.5) |

Key Insights

• Resilience in Sales: Xtep's performance in 3Q21 was resilient, outperforming expectations and peers, especially in the domestic fashion segment.
• Healthy Inventory and Discounts: Inventory levels remained stable, and discounts stayed consistent, indicating strong demand and efficient inventory management.
• Guidance Stability: The company maintained its guidance for sales and margins, reflecting confidence in its long-term strategy.
• Valuation Adjustment: The target price was adjusted to reflect a more realistic valuation, considering the industry de-rating.
• Strong Kids Segment: The kids segment showed significant growth, contributing to the overall positive outlook.
• Peer Comparison: Xtep's valuation is more attractive than its peers, especially when considering its projected growth and margin improvements.

Conclusion

Xtep (1368 HK) has demonstrated resilience in its 3Q21 performance, outperforming expectations and peers. The company maintains a BUY rating with a revised target price of HK$15.41, which implies a 30x FY22E P/E. The strong performance of the core brand, along with the growth in the kids segment and healthy inventory levels, supports the positive outlook. The company's 5-year plan and guidance suggest a sustainable growth trajectory, making it an attractive investment opportunity.