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，特步提出了一系列與撤資運動休閒業務相關的交易，其中包括K-Swiss和Palladium。我們認爲影響可能好壞參半：一方面，投資者可以獲得高達每股0.447港元的特別股息，而出售的業務不會再蒙受損失。另一方面，該協議犧牲了中期增長潛力。如果交易完成，那麼Xtep將只經營核心品牌Saucony和Merrell，以跑步爲重點。儘管如此，我們仍然對Xtep持樂觀態度，因爲我們認爲它正處於不斷增長的運動服市場的最佳位置。
Key Factors for Rating
評級的關鍵因素
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.
通過一系列交易剝離 K-Swiss 和鈀金。對於特步而言，交易的相關部分包括：（1）控股股東丁家族將以1.51億美元收購該品牌的控股公司KP；（2）特步向股東支付1.51億美元的特別股息；（3）特步向Hillhouse發行5億港元的CB，以及（4）Xtep購買KP發行的3.5％2032年CB 154 億美元。因此，特步有權在2032年CB轉換後擁有KP30％的股份，而Hillhouse也可能成爲KP的投資者。這些交易預計將於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.
我們的看法：短期積極但犧牲中期增長。鑑於這兩個品牌的表現似乎有所改善，我們認爲這筆交易令市場感到驚訝。KP 在 2023 年的淨虧損爲 3180 萬美元（大約
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.
2.2億元人民幣，佔淨利潤的21％），並且在24年第一季度仍處於虧損狀態。因此，特步剝奪這兩個品牌實際上可以提高其2024年和2025年的收益，而股東們還可能在2024年底享受每股0.447港元的特別股息。
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，這筆交易有兩個缺點：（1）它犧牲了這兩個品牌的長期潛力，尤其是鈀金在中國的表現良好；（2）在考慮3.5％的利息成本之前，特步發行的5億港元CB可能會將收益稀釋至少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.
該交易可能會提高短期估值。鑑於特別股息（相當於2024年5月10日收盤時的8.2％的股息收益率），且運動休閒業務的拖累較小，我們預計市場仍將對該交易做出積極反應。特步將專注於與跑步相關的品牌，我們預計它還將在索康尼和梅雷爾身上花費更多資源，這兩個品牌將在2024年實現盈利。假設交易已完成，並且24年第二季度年初至今的業績保持不變，我們認爲Xtep仍可以實現其餘3個品牌超過10％的收入增長，NPM有所改善，正如其先前的指導方針所述。
Key Risks for Rating
評級的主要風險
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.
下行風險：（1）多品牌戰略失敗；（2）核心品牌的零售銷售額惡化；（3）支出意外激增，（4）與交易相關的成本上漲。
Valuation
估價
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.
我們假設交易可能在2024年8月完成，並將24-26年的每股收益預測調整爲-1％/+3％/-0.3％，以主要反映：（1）K-Swiss和Palladium的撤資主要影響2025-2026年的收入；（2）銷售和收購假設略有變化，因爲我們預計核心品牌將投入更多成本，以及（3）股票稀釋。
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.
維持買入並將目標價上調至6.2港元，因爲我們預計現在更清潔的業務結構將提振市場對該股的情緒，因此我們將2024年的目標倍數提高至13倍（之前爲12倍）。
譯文內容由第三人軟體翻譯。