Zhitong Financial APP learned that China Banking International issued a research report saying that Xtep International (01368) "buy" rating, the current valuation is not expensive, and the bank also believes that the company's performance is already bottoming out, ready to reverse. The company's retail flow growth reached a high double-digit level in the third quarter of fiscal 23, in line with expectations. Offline growth exceeds online growth, with children / runners growing by more than 30% / 25%. The retail discount is 7-25 per cent, up from 25 per cent in the second quarter, but in line with management comments in August. The inventory-to-sales ratio is 4.5 to 5 months, similar to that in the second quarter.
The main points of China Bank International are as follows:
1) the retail pipeline trend is good, and the flow growth guidance of more than 30% in the fourth quarter should be achievable.
Although the growth rate of retail flow in the third quarter of fiscal 23 was similar to that in the second quarter, it performed better because its base was higher than that in the second quarter. Management expects growth of more than 30 per cent in the fourth quarter of 23, in line with China Banking International's expectations because of its low base and good retail trend, the bank is more confident.
2) A deep retail discount may be maintained in the fourth quarter of 23, but the inventory-to-sales ratio is also expected to return to about 4 months.
This is not surprising because management has repeatedly reiterated their plans and the short-term impact of cleaning up last winter's products in the second half of 23. These old products will be sold mainly through online channels and stores, and discounts on new products will not be affected, with strong sales rates so far in the first half of 2023 (80% in the first quarter and 75% in the second quarter, respectively).
3) assuming that the sales rate in the fourth quarter of FY23 is at the normal level, the FY24 guidelines will exceed expectations.
Management expects retail and public company-level sales to grow by more than 20% in fiscal 24, better than the bank's expectations of more than 15%. The bank believes that the main growth drivers include more than 10 per cent growth in store efficiency, more than 3 per cent growth in the number of stores and more than 20 per cent growth in children and e-commerce sales.
4) the new brand guidelines remain unchanged, but Saucony continues to perform well.
At present, the average store efficiency of Saucony has reached about 300000 yuan, although the store area is small, only 110square meters. The number of stores in fiscal year 23 is expected to reach about 100, of which about 20 are dealer stores. The bank also expects Saucony to break even in fiscal year 23.