Xtep International Holdings Limited engages in the design, development, manufacture, sale, and marketing and brand management of sports footwear, apparel, and accessories. The company sells its products primarily under the XTEP brand, as well as Palladium, K-Swiss, Saucony, and Merrell brand names. It is also involved in the trading of sportswear products.
Outstanding FY21 earnings. The company announced its FY21 annual results last week. FY21 is the highest record year for the company. Revenue 22.5% YoY to RMB10bn. Gross profit jumped by 30.6% YoY to RMB4.2bn. Profit attributable to ordinary equity holders jumped by 77.0% YoY to RMB908.3mn. Gross profit margin increased by 2.6 ppts to 41.7%. Net profit margin increased by 2.8 ppts to 9.1%.
A solid customer base is established. The Summer and Winter Olympic Games in 2021/22 have helped domestic sportswear brands to gain more market shares from International brands such as Nike and Adidas. Once the customer base is established, the company is expected to have stable growth due to brand loyalty and user stickiness.
Lockdowns are actually a buying opportunity. China is experiencing a surge in COVID cases and ensuing lockdowns of cities. However, this will generate pent-up demand for outdoor activities afterwards. In November, there will be another international sports event tantamount to the Olympic Games, the FIFA World Cup Qatar 2022. Sportswear companies are expected to enjoy another shopping spree in both the near term and mid-term.
Updated market consensus of the EPS growth in FY22/23 is 24.3%/24.4% YoY respectively, which translates to 22.1x/17.8x forward PE. Current PER is 27.5x. Bloomberg consensus average 12-month target price is HK$14.91.
