Xtep Int’l (1368 HK) Brand got attention after the Xinjiang Cotton event, and the company’s valuation discount narrowed May 10, 2021 94

PSR Recommendation: ACCUMULATE Status: Maintained
Target Price: HKDHKD7.79

Investment Summary
Xtep’s main brand’s retail sales (including online and offline channels) recorded an increase
of approximately 55% in Q1. The discount level and inventory level have continued to
improve quarterly. The retail inventory turnover period has been shortened to
approximately 4.5 months, which is in line with our expectations. The company’s recent
valuation discounts with leading sportswear companies have continued to narrow due to
the continued outperforming operating performance of its peers and the Xinjiang cotton
event.
The main brand’s performance in 2021 further improves
Xtep International announced on April 15 the operating status of Xtep’s main brand in Q1.
The retail sales growth of the main brand recorded a growth of about 55% compared with
the same period last year, in line with our expectations, mainly due to the low base last year.
Compared to 2019, it recorded a MDD growth, which was better than its peers (Anta Q1 vs
2019: LDD). By channel, online channels increased by 70% Yoy, and offline channels
increased by 40% Yoy. Both retail discounts and inventory cycles have improved. Retail
discounts range from 25% to 30%. Retail inventory turnover is about 4.5 months, returning
to pre-epidemic levels on a quarterly basis.

About the author

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Timothy Chong
Analyst
Research

Timothy Chong received Bachelor’s Degree with first class honor in Banking and Finance from University of Leicester. He is currently studying Master of investment management in Hong Kong Polytechnic University. Before joining Phillip Securities, Timothy worked at BOCOM international and he is equipped with years of experience in the capital market. Timothy is now a licensed research analyst at Phillip Securities and covers Consumer / Property Management sectors.

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