Jinwu Financial News | According to the Changjiang Securities Research Report, TEP International (01368) issued an announcement. 1) In 2019, Trap International acquired Gashway and Palatin brands to establish the fashion sports division KPGlobal (hereinafter referred to as KP) for US$260 million, but due to years of losses dragging down the company's performance, the Ding Shuibo family DingShunInvestment will acquire KP at a price of 150 million US dollars, divest it out of the listed company system, and distribute US$151 million to shareholders in special cash dividends; 2) KP will redeem it for $65 million Previously issued to Gao Lin in 2021, Teb International issued a 6-year convertible bond of HK$500 million to Gao Lin, with an interest rate of 3.5% and a share exchange price of HK$5.5 per share (equivalent to 3.3% of the company's total share capital after the share conversion). At the same time, Gao Lin reserved the right to purchase 20% of KP's shares within the next 5 years with 65 million US dollars; 3) Trap International acquired the Gassway and Palatin brands in 2019, using the listed company's own funds to support brand development. Accumulated losses since the 2019 acquisition and capital expenses and working capital at the end of March 2024 The total value is US$154 million. In order to offset this amount, KP issued an 8-year convertible bond of US$154 million to Special Step, with an interest rate of 3.5%. Special Step has the right to convert the bond to 30% of KP's shares within the next 8 years. If shares are not converted, TEP will recover this debt after 8 years, even with capital and profit.

According to the bank, KPGlobal achieved a loss of 2303/31.76 million US dollars in 2022/2023, and the profit impact at the reporting level of listed companies was a loss of 1.89/184 million yuan, and a loss of ~ 9 million US dollars in 2024Q1. The company expects to achieve the same level of loss in 2024 as in 2023, so the divestment of the fashion sports division is expected to increase the company's performance this year and next year. Furthermore, the company's cash flow has been optimized, and it is expected that it will further focus on professional running tracks to achieve collaborative development between the main brand of Xtrex and Saucone.

The company continued that in the short term, the company's inventory has returned to a relatively healthy level. In 2024, there is still room for optimization of the main brand's gross margin and A&P fee ratio, and professional sports brands continue to grow; in the medium to long term, Sauconie is on the right track, forming differences and complements with the main brand of Xtrex in the field of running. After the divestment of fashion and sports, the company's competitive advantage was further focused on the running track. In the short term, based on the divestment of the fashion sports division to boost the company's performance in the short term, the bank raised the company's annual performance forecast. It is estimated that in 2024-2026, Tep International will achieve net profit of 12.4, 15.2, and 1.67 billion yuan, respectively. The current price of PE is 12/9/9 times, respectively, maintaining a “buy” rating.