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Xtep International Holdings Limited (1368 HK): A relatively safe sector amidst full-blown crackdowns

  • BUY Entry – 12.3 Target – 14.5 Stop Loss – 11.2
  • Xtep International Holdings Limited is principally engaged in the design, development, manufacturing, sales, marketing and brand management of sportswear, including footwear, apparel and accessories. Its products are mainly sold under the self-owned brand of Xtep. 
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  • The sportswear sector has definitely been one of the best performing sectors YTD as demand has surged on the back of more people choosing to exercise during the pandemic and also due to the boycott against foreign brands. The Tokyo Olympics is expected to translate the pro-China sentiment into more consumption of domestic brands’ sportswear. 
  • Recently the State Council issued a national exercise plan from 2021 to 2025, to ensure the population’s fitness and exercise demands. The plan vowed to increase the number of people who often participate in regular exercise by 38.5% and expand the scale of the nationwide sports industry to 5 trillion yuan ($773.69 billion) by 2025. This was the one of the few positive news for the market given the government initiated clamp-downs on the various sectors. Sports sector is now officially supported by the authorities. Hence, we expect fund flows to flow into it. 
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  • Based on the peers’ comparison, we think the company still has upside potential to catch up with the market leaders such as Anta Sports and Li Ning.
  • Updated market consensus of the EPS growths in FY21/22/23 is 62.9%/27.4%/21.3% YoY respectively, which translates to 32.3x/25.4x/20.9x forward PE. Current PER is 39.4x. Bloomberg consensus average 12-month target price is HK$16.91.
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1368 HK (Source: Bloomberg)