20250418-招银国际-特步国际-01368.HK-Inline_1Q25_results_and_a_moderate_outlook_9页_1mb

Xtep (1368 HK) 1Q25 Results and Outlook Summary

Core Content Overview

Xtep (1368 HK) reported 1Q25 results that were inline with Bloomberg (BBG) and CMBI estimates. The company showed an encouraging trend in March 2025, indicating stability and potential for future growth. Despite macroeconomic risks, including the ongoing US-China trade war, the analysis remains cautiously optimistic about the sportswear sector and Xtep in particular. The stock is currently trading at a 10x FY25E P/E ratio, which is undemanding compared to its 8-year average of 15x.

Key Highlights

• 1Q25 Performance:

  • Retail sales growth was inline with management expectations.
  • E-commerce sales grew at a robust rate of 20%+.
  • Offline sales growth was at a low single-digit (LSD) level, but kids segment continued to outperform adults.
  • The March 2025 performance was similar to January 2025, which is considered satisfactory given the weak February performance due to seasonality.
  • The company's leadership in the running segment, as evidenced by its market share growth in the Xiamen and Wuxi marathons, and successful new product launches contributed to the solid results.

• Saucony Performance:

  • Saucony's retail sales growth is very robust, with a 30% to 40% growth rate.
  • The brand is expanding its store network, including flagship and high-ranked locations.
  • New product categories, such as the OS series, and the launch of the high-end series "Saucony SILO" are driving growth.

• Management Guidance and Targets:

  • The company's FY25E guidance and Saucony's 3 to 5 years target remain unchanged.
  • Management is optimistic about achieving a 15%+ operating profit (OP) margin in 3 to 5 years.
  • The group expects positive sales growth and a 10%+ net profit growth for FY25E.

• DTC Transformation:

  • No financial impact has been observed in the first half of 2025 from the DTC transformation.
  • The company is on track to repurchase 100 to 200 stores in 2H25E and 200 to 400 stores in FY26E.
  • The head of DTC operations is in place, and the company is upgrading its management system for products and members to enhance efficiency.

Financial Overview

Valuation and Target Price

• Target Price: HK$7.20
• Current Price: HK$4.90
• Upside: 46.9%
• P/E Ratio: 14x FY25E (unchanged), currently trading at 10x.
• Peer Comparison:
  • Xtep is among the H-share sportswear companies with a BUY rating.
  • The average P/E ratio for peers is 10.4x for FY25E and 9.1x for FY26E.
  • The median P/E ratio is 10.6x for FY25E and 9.1x for FY26E.
  • The forward 12M P/E valuation band is shown in Figure 6.

Market and Brand Performance

• China Consumer Discretionary Sector:

  • Xtep is part of this sector, and the report includes insights from other brands such as Li Ning, Anta, 361 Degrees, Topsports, and Pou Sheng.
  • The sector is facing challenges due to the trade war, but some brands are showing resilience and growth.

• Brand-Specific Growth Trends:

  • Anta Sports: Prudent targets, but the trend is encouraging.
  • Li Ning: Conservative guidance, but the trend is expected.
  • 361 Degrees: Cautious optimism after a strong CNY season.
  • Topsports: Improved performance in 2H25E, with more catalysts expected in FY26E.
  • Pou Sheng: Muted sales trend, but yield is still attractive.
  • Xstep: Building a more all-round company in the long run.

Key Assumptions and Growth Drivers

• Sales by Segment (RMB mn):

  • Shoes: Expected to grow steadily from FY23A to FY27E.
  • Apparel: Growth is expected to remain stable, with increasing margins.
  • Accessories: Moderate growth with stable margins.
  • Total: Steady growth with a focus on efficiency and expansion.

• Sales by Segment Growth (%):

  • Mass Market: Growth is expected to remain steady.
  • Athleisure: Growth is expected to pick up, though it was negative in FY24A.
  • Professional Sports: Strong growth trend.
  • Total: Steady growth with a positive outlook.

• Gross Margin:

  • Expected to increase from 42.2% in FY23A to 44.9% in FY27E.

• Operating Margin:

  • Expected to increase from 11.0% in FY23A to 14.9% in FY27E.

• Net Profit Margin:

  • Expected to increase from 7.2% in FY23A to 11.2% in FY27E.

• Earnings Growth:

  • Net profit growth is expected to be 10.8% in FY25E and 17.2% in FY27E.

Conclusion

Xtep (1368 HK) is maintaining its BUY rating with a target price of HK$7.20. The company's performance in 1Q25 was inline with expectations, with encouraging trends in March. Despite macroeconomic risks, the analysis remains cautiously optimistic, driven by the company's strong growth momentum, new product launches, and potential policy support for the consumer sector. The stock is currently undervalued compared to its 8-year average P/E ratio. The DTC transformation is progressing, with plans to repurchase stores and upgrade management systems. The company's financial performance and growth prospects suggest a positive outlook for the future.