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Saturday, March 29th, 2025

Xtep International: Strong Growth Momentum and Bright Outlook for 2025









Deep Dive: Xtep International Holdings Analysis – UOB Kay Hian

Deep Dive Analysis: Xtep International Holdings

Report by: UOB Kay Hian

Date: 10 January 2025

Overview of Xtep International Holdings

Xtep International Holdings (Ticker: 1368 HK) is a leading multi-brand sportswear company in China, strategically targeting the mass market and professional sports segments. Its diverse brand portfolio includes the core Xtep brand, along with premium international labels such as Saucony and Merrell. The company has consistently demonstrated a strong market presence and growth trajectory, with a focus on innovation, operational efficiency, and market expansion.

Investment Recommendation

The analysts at UOB Kay Hian have maintained their BUY recommendation for Xtep International Holdings, citing robust growth prospects and improving profitability. The target price for the stock has been revised upward by 5% to HK\$8.20, offering an upside potential of 46.4% from the current share price of HK\$5.60.

Key Highlights of the Report

Performance in 4Q24

During the fourth quarter of 2024, the core Xtep brand achieved high single-digit retail sell-through growth, bringing the full-year growth to a high single digit. Year-to-date (YTD), the brand has recorded double-digit retail sell-through growth, partly attributed to the earlier Chinese New Year in 2025. This strong start to the year has led to management’s optimistic outlook for 2025 revenue and profit targets.

Saucony’s Rapid Growth

Saucony has emerged as a key growth driver for Xtep, achieving over 60% year-on-year (YoY) retail sell-through growth in 2024. This growth has been supported by the opening of 40+ new stores, bringing the total count to over 150 stores by year-end, and same-store sales growth exceeding 45%. Management expects Saucony’s profitability to reach a margin of over 20% within the next 2–3 years, leveraging scale effects and expanded product lines.

Key Financial Metrics

  • Net Turnover (2024F): RMB15,027 million
  • EBITDA (2024F): RMB2,190 million
  • Net Profit (2024F): RMB1,240 million
  • EPS (2024F): 47.0 Fen
  • PE Ratio (2024F): 11.2x
  • Dividend Yield (2024F): 11.9%

Stock Impact and Strategic Insights

Profit Growth Projections

Management reiterated that the company is on track to achieve >20% profit growth in 2024, driven by strengthened expense control, proactive inventory management, and the narrowing of losses due to the divestiture of KP. The online retail channel grew by over 20% YoY in 4Q24, supported by shopping festivals, while the offline channel showed low single-digit growth, constrained by foot traffic challenges.

Inventory and Discounts

Channel inventory turnover remained stable at around four months as of end-4Q24. While the retail discount level deepened quarter-on-quarter to 25-30%, it improved YoY compared to 4Q23. This reflects effective discount management, ensuring stable margins.

Saucony’s Operational Efficiency

Saucony’s scale has now exceeded RMB1 billion, with an average store efficiency of over RMB300,000 (RMB500,000-600,000 for high-performing stores). Management remains confident in sustaining high double-digit same-store sales growth in 2025, supported by new product categories such as commuting and retro series.

Valuation and Risks

Valuation

Based on the Discounted Cash Flow (DCF) model, the target price for Xtep International Holdings has been raised to HK\$8.20. This valuation reflects the company’s improving profit contribution, particularly from Saucony. The stock currently trades at a compelling valuation of 11.2x 2024F PE and 10.1x 2025F PE.

Risks

  • Lower-than-expected retail sell-through growth in 2025.
  • Deeper-than-anticipated discounts impacting profitability.

Conclusion

Xtep International Holdings has started 2025 on a strong note, with robust growth across its core brand and international labels like Saucony. The company’s strategic focus on operational efficiency, market expansion, and product diversification positions it well for sustained growth. While there are risks to monitor, the company’s strong fundamentals and improving profitability make it an attractive investment opportunity. Analysts at UOB Kay Hian remain optimistic, reiterating their BUY recommendation with an upgraded target price of HK\$8.20.


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