Jingu Financial News | Huaxing Securities issued a research report stating that Xtep International (01368) released 3Q24 company business data. 1) Xtep brand: the average number of transactions per store increased, while foot traffic and conversion rates under pressure led to a slowdown in offline transaction growth to low double digits, with better performance of small street stores in low-tier cities than shopping center stores in higher-tier cities; online growth also slowed to high double digits. Xtep Kids slightly outperformed bulk products. 3Q24 retail discounts remained flat month-on-month but slightly improved year-on-year to 75%, inventory-to-sales ratio also remained flat month-on-month but slightly improved year-on-year to 4 times. Despite the pressure on short-term transaction growth, Xtep's discounts/inventory are at healthy levels. 2) After adding retro and sports fashion product lines, Saucony began opening flagship stores in high-tier cities, continuing its excellent performance in 3Q24 with over 50% transaction growth. As of 3Q24, Saucony's online transactions accounted for over 50%.

The bank further noted that Xtep brand's 4Q24 transactions are expected to increase significantly, with a projected year-on-year revenue/net income growth of 1.5%/21.3% in 2024: 1) Xtep brand's online and offline transaction speeds have both exceeded 10% since October, considering its strong performance in the first wave of Singles' Day sales, and as Singles' Day generally accounts for ~50% of fourth-quarter transactions, the bank expects significant growth in Xtep's 4Q24 transactions, leading to an approximately 8% year-on-year growth in full-year 2024 transactions. With the inventory-to-sales ratio expected to remain around 4 times at the end of the year (compared to 4-4.5 times in the same period last year), the bank forecasts a 4.1% year-on-year revenue growth for Xtep brand in 2024 to 12.43 billion yuan.

The bank maintains a 'buy' rating on Xtep International, raising the target price by 24% to HK$6.95, corresponding to 12 times the 2025 P/E ratio: considering the expected revenue growth speed of Xtep brand in 2H24 and the impact of KPGlobal's report, the bank revises Xtep International's 2024-26 revenue down by 3.6%/0.8%/0.9% to 14.56/14.92/16.24 billion yuan; adjusts net income by -3.0%/+2.0%/+1.4% to 1.25/1.39/1.57 billion yuan. The bank gives Xtep International a 12 times 2025 P/E ratio, with a new target price of HK$6.95, a 24% increase from the old target price, still indicating a 20% upside potential.