According to a research report released by CICC, to maintain the "outperform industry" rating of Xtep International (01368), the EPS forecast will remain unchanged in 2023 / 24, with a target price of HK $10.01m. The company released the operating results of the third quarter, 3Q23 Xtep main brand retail pipeline year-on-year growth of 10%, 20% retail discount 30% discount to 25% discount, channel inventory turnover 4.5 to 5 months. The main brand running and children's wear categories continue to grow rapidly, and the inventory is gradually optimized.

The main points of CICC are as follows:

The main brand running and children's wear categories continue to grow rapidly, and the inventory is gradually optimized.

The retail flow of 3Q23 Xtep's main brand grew 10-20 per cent year-on-year, including 10 per cent year-on-year growth in July due to the weather, 10 per cent year-on-year growth in August with the base decline, and 25-30 per cent year-on-year growth in September, driven by the Mid-Autumn Festival and National Day peak season. The company's deep ploughing running category, 160X series and other professional running products are constantly updated and iterated, leading to the improvement of brand strength and product strength. During the period, the running products increased by 25% compared with the same period last year. As the company continues to develop its children's clothing business, the children's wear business during the quarter increased by 30% compared with the same period last year, which is better than the overall performance of the company. In terms of discounts, 3Q23's retail discounts range from 30% to 25%, slightly deeper than the previous month (2Q23 is about 25% discount). At the end of September, the turnover of channel inventory was 4.5 to 5 months, with a slight improvement from the previous month (less than 5 months at the end of June).

In October, the main brands continued the good growth trend, guiding retail flow to resume 20% year-on-year growth in 2024.

In October, the retail flow of Xtep's main brand increased by 30% compared with the same period last year, continuing the previous good trend. The management plans for 4Q23 to further increase inventory clearance efforts (mainly e-commerce and Olai channels) at major nodes such as Singles' Day, and the discount will be deeper than the previous year. It is estimated that the retail flow of 4Q23 and Xtep's main brand will grow by 30% + and 20-25% year on year in 2023, and the inventory turnover will return to a healthy level of about 4 months by the end of 2023. As the company's inventory is gradually cleared, management guidance that revenue from major brands is expected to grow by about 20% year-on-year in 2024.

The performance of the new brand 3Q23 is outstanding.

Professional sports plate Soconi, Mailer 3Q23 retail growth of more than 100% year-on-year, excellent performance, of which Sokoni's monthly store efficiency has reached a good level of 300000 yuan +. Management expects the number of Sokoney stores to increase to about 100 by the end of 2023, of which about 20 are franchise models. Fashion sports plate Galaxy and Paladin 3Q23 domestic retail sales increased by more than 100% year-on-year, with monthly store efficiency reaching 300000 yuan +; overseas business was basically flat compared with the same period last year, and inventory clearance was relatively good.

Risk tips: intensified competition in the industry, terminal retail environment is not as expected, raw material prices fluctuate.