The Zhitong Finance App learned that CICC released a research report stating that it maintains the “outperforming industry” rating of TEP International (01368) and that the 2024/25 EPS forecast remains unchanged at 0.45/0.52 yuan. Considering the increase in the valuation center of the industry, the target price was raised 16% to HK$5.47. The company announced the operating conditions for the first quarter. The retail sales volume of the main brand of XTEP increased by a year-on-year increase in the number of units, retail discounts of 7 to 25% off, and channel inventory turnover for 4-4.5 months.

The report's main points are as follows:

E-commerce channels drive the main brand of TEP to achieve good growth under a high base.

Retail sales of the main brands of 1Q24 increased by a high number of units year-on-year under the high base of 1Q22/1Q23 (1Q22/1Q23 increased 30-35% and about 20%, respectively). By channel, the online channel strengthened its cost-effective product layout during the season, with a 25% + year-on-year increase in turnover, which is better than the year-on-year growth of offline channels with a lower number of units. The main brand of XTEP is deeply involved in professional running products, and sales of the newly launched 360X series of cost-effective Volkswagen carbon board running shoes were better than expected.

The company continues to lay out the sports children's clothing business, and during the season, the sales volume of the XTEP children's clothing business increased by about 10% year-on-year under a high base. In terms of discounts, although 1Q24 has traditional promotion seasons such as the Spring Festival, the retail discount for the main brand of Xtep is 7 to 25% off, which is an improvement over the previous month (30% off in 4Q23). By the end of March, the channel inventory turnover was 4-4.5 months, maintaining a healthy level.

Sauconi continues to perform well.

The professional sports sector Sauconee, Mille, and the fashion sports sector achieved a year-on-year increase of more than 50% in mainland China. Among them, on the one hand, Saucone strengthened collaboration with the main SCP brand in the field of running, and on the other hand, continued to launch product lines such as OG and commuting to broaden the wearing scene. The revenue growth and profit performance were superior to the company's expectations.

Growth has accelerated month-on-month since April.

Since April, the company's sales performance has continued to improve. Since April, retail sales of the main brand of XTEP have increased by double digits year on year, driving channel inventory turnover to 4+ months, and retail discounts have improved to about 25% off. Management expects that 2Q24 and 2024 are all expected to achieve double-digit year-on-year growth. In terms of new brands, retail sales volume in mainland China has increased by more than 50% year-on-year since April, and other brands have continued to grow rapidly. The good growth of various brands combined with a gradual decline in the subsequent base. Management expects 2H24 revenue growth to be faster than 1H24.

Risks: Industry competition intensifies, terminal retail environment falls short of expectations, raw material prices fluctuate.