24Q1 turnover increased steadily, and channel inventory improved year-on-year. In Q1, retail sales of the main brand of XTEP achieved a high year-on-year increase in the number of units, and 23Q1 had a high base of 20% year-on-year growth. Judging that the main brand's children's business continues 23 trends, growing faster than adults. The retail discount level was 7-7.5 percent off, the same year on year, and improved from 23Q4 (23Q 4:30% off). Channel inventory was healthy, reaching the level of 4-4.5 months, improving year over year (23Q 1:5 months).
Cost-effective new products are expected to help increase the market share of major brands. On March 20, Special Step and the China Athletic Association jointly held the “321 Running Festival and Champion Edition Running Shoe Family New Product Launch” to officially launch the new 360x carbon sneakers.
The 360x is equipped with three major technologies to create national carbon board running shoes that are more stable, more shock-absorbing, more comfortable, and more propulsive, and broaden the usage scenarios to daily exercise, commuting, student physical examinations, etc. The listing price is lower than 260x, and judging that it is cost-effective helps the main brand promote customer base stickiness. We believe that the launch of this new product at the Running Festival will help raise brand awareness in the target market and stabilize the leading position of domestic running shoes from the main brand.
Palatin retail expansion is judged to continue the high growth rate in the mainland. The new Palatin store in Xiamen opened on April 2 at SM Plaza Phase I, the most popular shopping mall in Xiamen. The design was inspired by the Louvre Museum in France, bringing consumers a trendy aesthetic experience of French brands. In 2023, the TEP Fashion Sports Division (Gashwei, Paladin) made significant progress in rebranding in mainland China, and revenue in mainland China increased by 224.3%. We believe that expanding retail networks in high-tier cities and providing high-end consumer experiences is in line with Paladin's brand positioning, which will help brands continue to raise brand awareness in mainland China.
New Sauconi products are expected to drive revenue growth and increase profit contribution. Sokoni launched its new flagship carbon running shoe, the Endorphin Pro, Hypeng 4 series, which brings a rebound feedback rate of over 95% and a smoother front and back, providing runners with a more direct top experience. In 2023, Sauconi was the first to achieve profit among the new Therpec brands. We judge that new products with high professional performance will drive Sauconi's turnover growth and increase their contribution to profit throughout the year.
Profit forecasting and valuation. We believe that with further control of fee rates and the restoration of e-commerce growth, the company's profit level is expected to rise further in 2024. Combined with significant inventory and cash flow management results, the company will effectively and flexibly respond to changes in the retail environment through solid and stable back-office capabilities. We expect net profit of 2024-2026 of $11.55, 12.77, and $1,408 million. The 2024 PE valuation range is 11-13X, which is converted according to HKD1 = RMB0.92, corresponding to a reasonable value range of HK$5.26-6.22, maintaining the “superior to the market” rating.
Risk warning. The epidemic was repeated, store efficiency and online growth fell short of expectations, the retail environment was weak, and the company's new products fell short of expectations.