XTEP INTERNATIONAL(1368.HK):DIVESTMENT OF ATHLEISURE LIKELY A BOOST IN NEAR-TERM SENTIMENT
XTEP INTERNATIONAL(1368.HK):DIVESTMENT OF ATHLEISURE LIKELY A BOOST IN NEAR-TERM SENTIMENT
On 9 May 2024, Xtep proposed a series of transactions related to the divestment of the athleisure business, which includes K-Swiss and Palladium. We believe the impact could be mixed: on one hand investors could get a special dividend of up to HK$0.447/share, and no more losses from the disposed business. On the other hand, the deal sacrifices medium-term growth potential. If the deal is completed, then Xtep will only operate the core brand, Saucony and Merrell, with running being the focus. Still, we remain positive on Xtep, as we view that it is hitting the sweet spot of the growing sportswear market.
2024年5月9日，特步提出了一系列与撤资运动休闲业务相关的交易，其中包括K-Swiss和Palladium。我们认为影响可能好坏参半：一方面，投资者可以获得高达每股0.447港元的特别股息，而出售的业务不会再蒙受损失。另一方面，该协议牺牲了中期增长潜力。如果交易完成，那么Xtep将只经营核心品牌Saucony和Merrell，以跑步为重点。尽管如此，我们仍然对Xtep持乐观态度，因为我们认为它正处于不断增长的运动服市场的最佳位置。
Key Factors for Rating
评级的关键因素
Divesting K-Swiss and Palladium with a series of transactions. For Xtep, the relevant parts of the deal consists of: (1) the controlling shareholder Ding Family to acquire KP, the holding company of the brands, for US$151m; (2) Xtep to pay special dividends of US$151m to shareholders; (3) Xtep to issue CB of HK$500m to Hillhouse, and (4) Xtep to purchase the 3.5% 2032 CB issued by KP of US$154m. Hence, Xtep has the right to own 30% stake of KP upon the conversion of the 2032 CB, while Hillhouse may also become an investor of KP. The transactions are expected to be completed in Aug 2024.
通过一系列交易剥离 K-Swiss 和钯金。对于特步而言，交易的相关部分包括：（1）控股股东丁家族将以1.51亿美元收购该品牌的控股公司KP；（2）特步向股东支付1.51亿美元的特别股息；（3）特步向Hillhouse发行5亿港元的CB，以及（4）Xtep购买KP发行的3.5％2032年CB 154 亿美元。因此，特步有权在2032年CB转换后拥有KP30％的股份，而Hillhouse也可能成为KP的投资者。这些交易预计将于2024年8月完成。
Our take: short term positive but sacrificing medium-term growth. We believe the deal is a surprise to the market, given the seemingly improving performance of the two brands. KP had a net loss of US$31.8m in 2023 (approx.
我们的看法：短期积极但牺牲中期增长。鉴于这两个品牌的表现似乎有所改善，我们认为这笔交易令市场感到惊讶。KP 在 2023 年的净亏损为 3180 万美元（大约
RMB220m, or 21% of net profit), and is still loss making in 1Q24. So Xtep's stripping off the two brands could actually boost its 2024 and 2025 earnings, while shareholders could also enjoy special dividends of HK$0.447/share, likely in late 2024.
2.2亿元人民币，占净利润的21％），并且在24年第一季度仍处于亏损状态。因此，特步剥夺这两个品牌实际上可以提高其2024年和2025年的收益，而股东们还可能在2024年底享受每股0.447港元的特别股息。
However, the deal has two drawbacks: (1) it sacrifices the long-term potential of the two brands, especially Palladium in China as its performance is good, and (2) the HK$500m CB issued by Xtep could dilute earnings by at least 3.3%, before the 3.5% interest cost is considered.
但是，这笔交易有两个缺点：（1）它牺牲了这两个品牌的长期潜力，尤其是钯金在中国的表现良好；（2）在考虑3.5％的利息成本之前，特步发行的5亿港元CB可能会将收益稀释至少3.3％。
The deal could boost near-term valuation. We expect the market would still react positively to the deal, given the special dividend (equivalent to 8.2% dividend yield based on 10 May 2024 close), and less drag from the athleisure business. Xtep will focus the brands relevant to running, and we expect it would also spend more resources on Saucony and Merrell, which turn profitable in 2024. Assuming the deal completed, and 2Q24 YTD performance in-line, we believe Xtep could still achieve a >10% revenue growth for the remaining 3 brands, with NPM improving, which is stated as its previous guidance.
该交易可能会提高短期估值。鉴于特别股息（相当于2024年5月10日收盘时的8.2％的股息收益率），且运动休闲业务的拖累较小，我们预计市场仍将对该交易做出积极反应。特步将专注于与跑步相关的品牌，我们预计它还将在索康尼和梅雷尔身上花费更多资源，这两个品牌将在2024年实现盈利。假设交易已完成，并且24年第二季度年初至今的业绩保持不变，我们认为Xtep仍可以实现其余3个品牌超过10％的收入增长，NPM有所改善，正如其先前的指导方针所述。
Key Risks for Rating
评级的主要风险
Downside risks: (1) unsuccessful multi-brand strategy; (2) deteriorated retail sell-through for core brand; (3) unexpected spike in spending, and (4) higher costs related to transactions.
下行风险：（1）多品牌战略失败；（2）核心品牌的零售销售额恶化；（3）支出意外激增，（4）与交易相关的成本上涨。
Valuation
估价
We assume the transactions could be completed in Aug 2024, and change our 24-26 EPS forecast by -1%/+3%/-0.3% to mainly reflect: (1) the divestment of K-Swiss and Palladium which mainly affects 2025-2026 revenue; (2) slight change in SG&A assumptions as we expect more cost will be dedicated to core brands, and (3) the shares dilution.
我们假设交易可能在2024年8月完成，并将24-26年的每股收益预测调整为-1％/+3％/-0.3％，以主要反映：（1）K-Swiss和Palladium的撤资主要影响2025-2026年的收入；（2）销售和收购假设略有变化，因为我们预计核心品牌将投入更多成本，以及（3）股票稀释。
Maintain BUY and lift our TP to HK$6.2 as we lift our 2024 target multiple to 13x (previous: 12x) since we expect the now cleaner business structure should boost market's sentiment on the stock.
维持买入并将目标价上调至6.2港元，因为我们预计现在更清洁的业务结构将提振市场对该股的情绪，因此我们将2024年的目标倍数提高至13倍（之前为12倍）。
译文内容由第三方软件翻译。