Matters:

Company announcement: On April 18, 2024, the company announced the operating conditions for the first quarter of 2024. In the first quarter, the online and offline omni-channel retail sales volume of the main brand of XTEP increased by a high number of units. Retail discounts were 7-7.5 percent off, and channel inventory turnover was 4-4.5 months.

Guoxin Textile's opinion:

1. Special brand performance in the first quarter was in line with expectations, with high volume growth, retail discounts of 7-7.5 percent off, and the inventory sales ratio remained healthy; 2. Risk warning: consumer demand recovery fell short of expectations; damage to brand image; increased vicious brand competition; systemic market risks; investment advice: steady growth in the first quarter, healthy operation, and medium- to long-term focus on the growth opportunities of the main brand under a multi-brand layout. In the first quarter, the main brand turnover grew by a high number of units on a high basis, and the performance was slightly better than the company's target. Recently, sales have accelerated, discounts have narrowed, and inventory sales ratios have declined. New brands have continued to grow rapidly domestically, and are expected to maintain steady growth throughout the year. Looking at the medium to long term, the main brand of Xtrex is positioned in the mass market and is deeply involved in the field of running to strengthen its brand potential. At the same time, the new brand is in a period of rapid growth, and it is expected that Sokoni will continue to expand its franchise model. Maintaining the profit forecast, net profit for 2024-2026 is expected to be 11.7/13.1/1.47 billion yuan, respectively, up 13.5%/12.2%/12.0% year-on-year. Maintain a target price of HK$5.3-5.8, corresponding to 11-12x PE in 2024, and maintain a “buy” rating.