Incident Overview
The company announced 2024Q1 operating data: retail sales of the main brands in Q1 increased by a high number of units over the same period last year, and grew steadily under a high base (23Q1 turnover increased 30-40%).
Analytical judgment:
In 24Q1, retail sales of major brands increased by a high number of units over the same period last year. Our analysis was mainly driven by sales exceeding expectations for the new 360X product in March. (1) By channel, since 23Q1 was affected by the liberalization of the epidemic and the offline base is higher, we analyzed that the online growth rate was higher than offline; (2) Judging from the operating data, 24Q1 company's retail discount improved month-on-month. The Q1 retail discount was 7-7.5% off (23Q4 retail discount was about 30% off), which remained the same as 23Q1. It is expected that 24Q2 will improve to the level of 75% off, excluding the impact of the Spring Festival discount. The 24Q1 channel inventory turnover was 4-4.5 months, improving compared to 23Q1 (less than 5 months), and we expect Q2 to improve to 4 months; (3) By brand, the main brand estimates that children are slightly higher than adults (mainly due to a smaller child base than adults); Sauconi benefited from its superior performance in professional running, and the estimated growth rate is higher than other new brands.
Investment advice
Our analysis: 1) In the short term, the Q1 high base will benefit from new product sales exceeding expectations and achieving high order growth, and Q2-Q4 is expected to achieve double-digit growth in the face of a declining base. 2) Currently, the industry is affected by pressure such as inventory removal and deepening discounts, but the XTEP brand is relatively cost-effective, benefiting from the downturn in consumption in the low-tier market, and the cost performance advantage is expected to become more prominent. 3) After the company acquires JV (Joint Venture), agency fees are expected to decrease, and Sokoni's gross margin is expected to increase. Maintaining the previous profit forecast, maintaining the 24/25/26 operating income of $161.53/183.73/20.916 billion, maintaining the 24/25/26 net profit of $11.78/13.82/$1,613 billion, corresponding to maintaining the 24/25/26 EPS of $0.45/0.52/0.61, and the closing price of HK$4.46 on April 18, 2024 corresponding to the 24/25/26 PE was 9/8/7 times (1 HKD = RMB 0.92), maintaining the “buy” evaluation grade.
Risk warning
Excellent product system reform results fall short of expectations; risk of improving store efficiency falling short of expectations; risk of increasing investment in new brand promotion; systemic risk.