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1、 1 買入買入 收盤價:收盤價:5.15港元港元(2018年年7月月6日日)目標價:目標價:6.30港元港元(+22.3%)股價表現股價表現 市值 14.71億美元 已發行股數 22.214億股 核數師 EY 自由流通量 39.5%52周交易區間 2.395-6.140港元 三個月日均成交量 367萬美元 主要股東 主席丁水波 來源:公司,彭博 Sources:Company,CGIS Research 中國消費行業中國消費行業 體育用品體育用品 我們相信，特步的業務改革成果將在今年變得更加明顯，而公司也將受益于中國體育用品市場的不斷增長。特步實施了改革，使公司變身為專業的跑步產品品牌。公司從2、根本上改革了產品、營銷策略和渠道，故此有望捕捉到中國跑步運動市場快速增長帶來的需求。由于轉型的關系，公司的財務狀況曾受影響，2017年受到一次性項目所拖累，其情況最為嚴重。但是，我們認為最壞的情況將在2018年結束。受惠于良好的銷售勢頭和商店的平均盈利能力提升，我們預計特步國際的每股盈利將在2017財年至2020財年實現24.4的復合年增長率，較前幾年大幅改善。我們認為，盈利復蘇將支持股份獲得重新估值。我們首次覆蓋并予買入，目標價為6.30港元，這是基于16倍2019年市盈率。投資亮點 轉型成為專業品牌。轉型成為專業品牌。特步國際于 2015 年啟動了名為“3+”的三年戰略改革計劃；2018 3、年將會是該計劃的最后一年。“3+”框架包括產品+、體育+和互聯網+。至今，特步國際已成功推行“3+改革”，協助其在專業體育用品市場上獲得增長動力。目前，公司約 50%的產品組合為專業體育用品，并正在以專業跑手為目標客戶。根據京東和尼爾森進行的研究指出，跑步現在已經成為中國最受歡迎的一項運動，因此我們相信中國跑步賽事的參賽人數不斷增加將可讓公司受惠。實體分銷商于渠道改革后的增長更為穩健。實體分銷商于渠道改革后的增長更為穩健。除了在線上渠道采取的有力措施外，另一個值得一提的改革是特步的渠道改革，當中以分銷網絡的改革最值得市場關注。特步國際將其分銷渠道變得更為扁平，架構更為簡單。另一個改革重點是提高4、每間店鋪的盈利能力，而隨著時間的推移，其盈利能力有所改善。過去幾年，公司已減少特步的店鋪數目，以優化店鋪表現。我們估計特步國際的店鋪數目將增加約 6%至 6,350 間，而我們預期每間店鋪在批發方面的生產力將于 2018 年提高 7%。盈利自盈利自 2018 年起表現穩健。年起表現穩健。雖然特步國際于 2015 年開始推行改革，但其影響并不能直接于整體的財務狀況中反映。主要的原因是即使新推出的產品銷售表現良好，但公司仍然需要處理其在過去遺留下來的問題：(1)2017年業績受到一次性存貨回購所嚴重影響；和(2)特步兒童業務過去一直拖累業績表現。解決上述問題后，公司改革的正面影響應該可以在財務狀況5、中反映。首次覆蓋并給予買入評級。首次覆蓋并給予買入評級。我們目前對特步國際于 2018/2019/2020 財年的每股盈利預測分別是人民幣 0.26/0.32/0.36 元，意味著未來三年的每股盈利增長為 40.7%/21.6%/12.6%，2017 財年至 2020 財年的每股盈利復合年增長率則為 24.4%。我們首次覆蓋該股并給予買入評級。我們的目標價為 6.30 港元，乃基于 16 倍的 2019 年市盈率計算。目標市盈率倍數高于其歷史估值范圍，但我們相信自 2017 年末起的重新估值將會繼續維持。根據 2018 財年至2020 財年的 17.0%每股盈利復合年增長率，我們 16 倍的 6、2019 年市盈率也意味著約 1 倍的市盈增長率。2018年年7月月9日日 李嘉豪,李嘉豪,CFA分析員分析員(852)3698 6392 .hk 王志文,王志文,CFA研究部主管研究部主管(852)3698 6317 .hk 來源:彭博 特步國際特步國際 1368.HK 跑步產品專家；首次覆蓋并予買入跑步產品專家；首次覆蓋并予買入 02040608010012001234567(HK$million)(HK$)Turnover(RHS)Price(LHS)Key Financials(RMB m)FY2016FY2017FY2018EFY2019EFY2020ERevenue5,397 5,7、113 5,575 6,160 6,621 YoY Change1.9%-5.2%9.0%10.5%7.5%Net Profit After Tax528 408 574 701 787 YoY Change-15.2%-22.7%40.7%22.0%12.3%EPS(RMB)0.24 0.19 0.26 0.32 0.36 YoY Change-17.5%-21.3%40.7%22.0%12.3%ROE10.9%8.2%11.0%12.9%13.6%P/E17.7x22.5x16.0 x13.1x11.6xDividend Yield3.4%4.5%3.8%4.6%5.2%來源:公司,中國銀8、河國際證券研究部 收入(百萬人民幣)收入(百萬人民幣)同比變動 稅后凈利潤(百萬人民幣)稅后凈利潤(百萬人民幣)同比變動 每股盈利（人民幣）每股盈利（人民幣）同比變動 股本回報率股本回報率 市盈率（倍）股息收益率（）股息收益率（）主要財務指標(百萬人民幣)主要財務指標(百萬人民幣)2 BUY Close:HK$5.15(July 6,2018)Target Price:HK$6.30(+22.3%)Price Performance Market Cap US$1,471m Shares Outstanding 2,221.4m Auditor EY Free Float 39.5%52W r9、ange HK$2.395-6.140 3M average daily T/O US$3.67m Major Shareholding Chairman Ding Shui Po(60.06%)Sources:Company,Bloomberg Sources:Company,CGIS Research China Consumer Sector Sporting Goods We believe that the fruits of Xteps business reforms will be more visible this year and that the Company will10、 benefit from the growing market in China for sporting goods.Xtep implemented reforms that transformed it into a professional running products brand.The Company radically reformed its products,marketing strategies and channels,so it is likely to capture the fast-growing demand related to the sport o11、f running in China.Because of the transformation,its financials have suffered,and 2017 was hit hardest because of one-off items.However,we believe the worst will be over in 2018E.With positive sales momentum and improving profita-bility per store,we expect Xteps EPS to achieve a CAGR of 24.4%in FY2012、17-FY2020E.This is a significant improvement over previous years.We believe a re-rating is justified by the earnings recovery.Initiate with BUY.Our target price of HK$6.30 is based on 16x 2019E PER.Investment Highlights Transformed into a Professional Brand.Xtep initiated a three year reform program13、,called“3+Revolution”,in 2015;2018 will be the final year.The“3+”framework refers to Products+,Sports+and Internet+.So far,Xtep has successfully followed the“3+Revolu-tion”,and this has helped it gain traction in the professional sportswear market.Currently,around 50%of the product mix is profession14、al sportswear,and the Company is targeting professional runners.We believe the Company will benefit from the increasing participa-tion in running competitions in China,as running is now the most popular sport in China,according to a study conducted by JD&Nielsen.Healthier Physical Distributors after15、 Channel Reforms.In addition to the strong initia-tives seen in online channels,another noteworthy Xtep reform was channel reforms,the most notable of which was network reform.Xtep flattened its distribution channel to a much simpler structure.Another aspect of the reforms is improving per-store pro16、fitability,which has resulted in improvement over time.Over the past few years,the Company has reduced the number of Xtep stores to optimize store performance.We estimate that Xteps store count will increase by around 6%to 6,350,while we expect per store produc-tivity on a wholesale basis to improve17、 by 7%in 2018E.Earnings Show Resiliency from 2018E Onwards.Although Xtep has introduced re-forms since 2015,their impact cannot be directly seen in the overall financials.The main reason is that the newly introduced products sold well,but the Company also had to deal with its legacy problems:(1)the 18、2017 results were greatly impacted by a one-off invento-ry buy back;and(2)Xtep Kids dragged down the performance in the past.After dealing with these problems,the Company should see the positive influence of the reforms re-flected in the financials.Initiate with BUY.Our current EPS forecast for Xtep19、 for FY2018E/19E/2020E is RMB0.26/0.32/0.36,respectively,implying EPS growth of 40.7%/21.6%/12.6%over the three years,or an EPS CAGR of 24.4%in FY2017-FY2020E.Initiate with BUY.Our tar-get price of HK$6.30 is based on 16x 2019E PER.The target PER multiple is higher than its historical valuation rang20、e,but we believe the re-rating since late 2017 will be main-tained.Our 16x 2019E PER also implies a 1x PEG ratio,based on the 17.0%EPS CAGR between FY2018E and FY2020E July 09,2018 Tony Li,CFAAnalyst(852)3698 6392 .hk Wong Chi Man,CFAHead of Research(852)3698 6317 .hk Source:Bloomberg Xtep Internati21、onal 1368.HK Running Specialist.Initiate with BUY.02040608010012001234567(HK$million)(HK$)Turnover(RHS)Price(LHS)Key Financials(RMB m)FY2016FY2017FY2018EFY2019EFY2020ERevenue5,397 5,113 5,575 6,160 6,621 YoY Change1.9%-5.2%9.0%10.5%7.5%Net Profit After Tax528 408 574 701 787 YoY Change-15.2%-22.7%4022、.7%22.0%12.3%EPS(RMB)0.24 0.19 0.26 0.32 0.36 YoY Change-17.5%-21.3%40.7%22.0%12.3%ROE10.9%8.2%11.0%12.9%13.6%P/E17.7x22.5x16.0 x13.1x11.6xDividend Yield3.4%4.5%3.8%4.6%5.2%3 Key financials Sources:Company,Capital IQ,CGIS Research estimates Income Statement(RMB m)FY2016FY2017FY2018E FY2019E FY2020EB23、alance Sheet(RMB m)FY2016FY2017FY2018EFY2019EFY2020ERevenue5,397 5,113 5,575 6,160 6,621 Bank Balances and Cash2,847 3,832 3,643 3,464 4,334 COGS(3,065)(2,869)(3,144)(3,474)(3,720)Restricted Bank Deposits1,399 952 952 952 952 Gross Profit2,331 2,244 2,431 2,685 2,901 Trade Receivables1,916 1,719 1,824、09 2,089 2,101 SG&A(1,513)(1,678)(1,598)(1,718)(1,800)Inventories460 718 574 796 671 Other Operating Items99 158 163 172 179 Other Current Assets596 661 427 757 502 Operating Profit917 725 996 1,139 1,280 Total Current Assets7,217 7,882 7,405 8,057 8,560 Finance Costs,Net(51)(54)(70)(17)(23)Other It25、ems99 158 163 172 179 PP&E618 646 725 811 905 Net Profit Before Tax866 671 926 1,123 1,257 Goodwill&Intangible Assets5 8 8 8 8 Income Tax(293)(224)(310)(376)(421)Other Non Current Assets334 398 390 382 374 Net Profit After Tax528 408 574 701 787 Total Non Current Assets957 1,052 1,122 1,201 1,286 Mi26、nority Interest(After Tax)45 38 42 46 49 Total Assets8,174 8,934 8,527 9,258 9,846 EPS(RMB)0.24 0.19 0.26 0.32 0.36 DPS(RMB)0.14 0.19 0.16 0.19 0.22 Trade Payables896 1,028 1,081 1,249 1,246 Short-term Borrowings1,502 831 510 1,073 149 EBITDA976 793 1,060 1,209 1,354 Other Current Liabilities632 63027、 732 801 859 EBIT917 725 996 1,139 1,280 Total Current Liabilities3,029 2,489 2,323 3,122 2,253 Long-term Borrowings-1,019 510 -1,000 Revenue Growth1.9%-5.2%9.0%10.5%7.5%Other Non-current Liabilities122 97 134 163 182 Operating Profit Growth-0.4%-21.0%37.4%14.4%12.3%Total Non-current Liabilities122 28、1,116 644 163 1,182 Net Profit Growth-15.2%-22.7%40.7%22.0%12.3%Total Liabilities3,151 3,605 2,966 3,285 3,435 EPS Growth-17.5%-21.3%40.7%22.0%12.3%Total Common Equity4,953 5,221 5,411 5,777 6,166 Gross Margin43.2%43.9%43.6%43.6%43.8%Minority Interest69 108 149 195 245 Operating Margin17.0%14.2%17.929、%18.5%19.3%Total Equity5,023 5,329 5,561 5,973 6,411 Net Profit Margin9.8%8.0%10.3%11.4%11.9%Total Equity&Liabilities8,174 8,934 8,527 9,258 9,846 Cash Flow Statement(RMB m)FY2016FY2017FY2018E FY2019E FY2020ERatiosFY2016FY2017FY2018EFY2019EFY2020ENet Profit After Tax528 408 574 701 787 ROE10.9%8.2%130、1.0%12.9%13.6%D&A Add-back59 68 64 70 74 ROA6.5%5.0%6.4%8.2%8.5%Net Change in Working Capital(510)(119)480 (566)441 Other Operating Items268 201 24 30 34 Net Debt/EquityNet CashNet CashNet CashNet CashNet CashCFO346 558 1,142 235 1,336 EBITDA Interest Coverage19x15x15x73x60 xCAPEX(95)(123)(134)(151)31、(160)Rec.Turnover Days119 130 115 115 115 Other Investing Items(472)398 64 66 64 Inventory Turnover Days51 75 75 72 72 CFI(567)275 (71)(85)(96)Payables Turnover Days107 122 122 122 122 Other Payables Turnover Days64 70 70 70 70 Dividends Paid(394)(271)(430)(383)(446)Net Change in Debt(228)421 (831)532、3 76 Current Ratio2.38x3.17x3.19x2.58x3.80 xIssue of Shares62 7 -Quick Ratio2.23x2.88x2.94x2.33x3.50 xOther Financing Items79 4 -ValuationFY2016FY2017FY2018EFY2019EFY2020ECFF(542)154 (1,261)(329)(370)P/E17.7x22.5x16.0 x13.1x11.6xTotal Cash Flow(764)987 (190)(179)870 P/B1.9x1.8x1.7x1.6x1.5xFree Cash 33、Flow142 369 1,156 208 1,316 Dividend Yield3.4%4.5%3.8%4.6%5.2%4 (1)Transformation to a Professional Sportswear Brand Paying Off Xtep is a Chinese sportswear brand,which started in 2002,with an initial focus on the fashion sportswear.However,given the intensified competition and changing consumer pre34、ferences,Xtep has proactively rebranded itself into a professional sportswear brand since 2015.This has been a successful transformation,and it is paying off in terms of positive consumer perception and financial returns.Xtep chose to focus on running as its specialization,and as a result,has become35、 a well-recognized brand among runners in China.Running is now one of the most popu-lar sports in China,and its popularity is on a rising trend.Xtep has not just benefited from changing consumer preferences;it is proactively reshaping them.We believe this strategy will continue to pay off for Xtep.T36、hree-Year Reform Plan Well Executed Xtep initiated a three-year reform plan called“3+Revolution”in 2015;2018 will be the final year in the reform program.The“3+”framework relates to Products+,Sports+and Internet+.So far,Xtep has successfully followed the“3+Revolution”framework,which has helped the C37、ompany gain traction in the professional sportswear market.Sports+:The Rise of Professional Sportswear and Product Improvement Throughout the history of Xtep,affordable fashion sportswear has been the focus of the Company.This can be seen partly in their reported revenue mix:apparel accounted for 5038、%of total revenue before the reforms.After their brand repositioning,we esti-mate that fashion sportswear still accounts for around 50%of total revenue,with pro-fessional sportswear accounting for the other 50%.Investment Thesis Now 50%of its product mix is professional sportswear Sources:Company Fi39、gure 1:Xteps Focus Changed from Fashion Sportswear(Left:2014 Edition)to Professional Sportswear(Right:2018 Edition)Xtep has transformed into a run-ning brand 5 The focus of Xteps professional sportswear is mainly footwear for runners.Three key product series have been introduced to consumers:Dynamic40、 Foam,Reactive Coil,and Air Mega.These are products designed for routine runners,emphasizing shock ab-sorption.At the same time,Xtep has cooperated with leading materials companies,such as 3M,Dow Chemical and Toray,in designing proprietary materials for sports-wear.This has created a distinction bet41、ween its products and those of other domestic brands with similar sales prices.The running-series products Xtep created are well-perceived by runners.According to Joyrun,a Chinese social network for runners,Xteps products are widely worn by run-ners in Chinese marathon races.In certain races,Xtep is42、 among the top brands worn by top runners.On top of that,Xtep is the most popular domestic brand.This shows that Xteps products are competitive enough to stand out among various brands with years of history designing running shoes.Sources:Company,CGIS Research Figure 2:Revenue Mix of Xtep by Product43、 Category 45.7%43.9%44.9%48.6%51.7%63.7%61.5%65.3%63.7%52.9%54.3%53.3%49.5%46.3%35.3%36.4%32.7%34.4%0%10%20%30%40%50%60%70%80%90%100%FY2009FY2010FY2011FY2012FY2013FY2014FY2015FY2016FY2017FootwearApparelAccessoriesSources:Company,CGIS Research Figure 3:Number of Top Runners Wearing Xtep Shoes in Sele44、cted Marathon Races in China BrandFinished in 3HoursBrandPassed 37.5 kmwithin 3 HoursBrandPassed 37 kmwithin 3 HoursAdidas40ASICS239ASICS152Asics34Xtep170Xtep107Nike29adidas96Do-win94Xtep21Nike94Adidas87Xteps Share15.10%20.00%17.10%2018 Chongqing Marathon2017 Xiamen Marathon2016 Guangzhou Marathon 645、 Sports+:Professional Sports-Oriented Marketing Another distinct strategy adopted by Xtep is professional sports-oriented marketing.While it continues to deploy traditional advertising and promotion tactics,like using Chinese celebrities for endorsement,it has started to strengthen its investment in46、 sports events.The scope is not limited to sponsoring sports events like marathons;Xtep also organizes sports events.This has promoted brand awareness among profes-sional runners,and it also complements other aspects of the Companys strategies.Xtep has been very active in executing its new marketing47、 strategy.It was a partner of the Chinese Athletic Association in the strategic development of a marathon in August 2016.The Chinese Athletic Association is a national sport association that administers athletics events recognized by the Chinese Olympic Committee,so the partnership helped increase b48、rand recognition among runners.Subsequently,it was the most ac-tive sportswear sponsor in China,as it sponsored 29 major marathons in China in 2017,the most of all brands.We believe this strategy will pay off well for Xtep,as marathons are becoming more common in China.In 2017,there were nearly 1,1049、0 marathon or similar races held in China,with close to 5 million runners participating.The Chinese Athletic Association aims to increase the number of races to 1,900 in 2020,with 10 million participants.This means the number of active runners will grow at a CAGR of 26%in 2017-2020E if the target is50、 achieved.Sources:Chinese Athletic Association Figure 4:Xtep is one of the Partners of Chinese Athletic Association on the Strate-gic Development of Marathons Figure 5:Number of Participants in Marathon and Related Races in China Targeted by the Chinese Athletic Association(Unit:million)0.91.52.857 51、8 1002468101220142015201620172018E2019E2020ESources:Chinese Athletic Association,CGIS Research estimates Xtep:Most Active Sponsors of Running Races in China We expect the no.of active runners to grow at a CAGR of 26%in 2017-2020E 7 We expect this to be achievable,as marathons and other road races ar52、e still relatively new in China.Developed markets have many more active runners and road races or-ganized each year.For example,in the US last year,30,400 road races were orga-nized,and 17 million runners participated.Considering the population difference be-tween China and the USA,the penetration r53、ate of marathons in China still has plenty of room to catch up.We expect rising income and increasing health awareness to be the main drivers.Xtep,as an active road race organizer,will benefit from its continuous investment in this area,and we believe this will help drive its sales of professional s54、portswear.Figure 6:Number of Marathon Races in China Targeted by the Chinese Athletic Associa-tion Sources:Chinese Athletic Association,CGIS Research estimates Figure 7:Number of Road Races and Participants China&the US Sources:Chinese Athletic Association,Running USA,CGIS Research 1,100 1,900 256 355、50 -200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,00020172018E2019E2020ENo.of Marathon&Related RacesNo.of Marathon&Related Races Accredited by Chinese Athletic Association1,100 30,400 517024681012141618-5,000 10,000 15,000 20,000 25,000 30,000 35,000China(2017)USA(2016)No.of Road Races(LHS)No.of P56、articipants(m;RHS)8 Internet+:Top Performer among Domestic Brands Like other retailers,Xtep has embraced the megatrend of e-commerce and introduced reforms to its online channels.So far,Xtep has been successful in its implementation.The strong performance of its online channels supports its overall 57、growth,and we be-lieve Xtep will continue to benefit from this,as e-commerce usually provides higher margins.By introducing measures such as signing a cooperative agreement with Tmall,Xtep has distinguished itself from its peers in the area of e-commerce.In terms of revenue contribution,we estimate 58、that Xteps e-commerce sales contributed to 21%of total revenue in 2017,which is the highest among major domestic sportswear companies.We expect the e-commerce contribution to remain at a similar level,since the produc-tivity of physical stores is catching up.We also consider this to be a major achie59、vement for Xtep,which is a second-tier do-mestic brand.Compared to 361 Degrees 8%,we believe Xtep has been more suc-cessful in implementing its O2O strategy and product upgrades.Xtep also stands out by being a top seller in various online platforms;it is a top seller of sports footwear in Tmall in t60、erms of volume,for example.Figure 8:Revenue Contribution from E-commerce,2017 Sources:Company,CGIS Research estimates 21%of revenue from e-commerce,the highest in the sector 21%19%15%8%0%5%10%15%20%25%XtepLi NingAnta361 Degrees 9 (2)Healthier Physical Distributors after Channel Reforms Other notewor61、thy Xtep reforms were channel reforms,which were launched as part of the“3+Revolution”.The reforms have been successful in improving the condition of its distributors,which is the key to long-term,sustainable growth.Distribution Network Optimization Among all things,the most notable channel reform w62、as network reform.Xtep flattened its distribution channel to a much simpler structure.Instead of relying on multiple layers of distributors to expand,its 40 exclusive distributors take more responsibility for direct-ly managing the stores.In 2017,approximately 60%of all Xtep stores(around 6,000)were63、 directly operated by exclusive distributors.The ratio of stores directly operated by exclusive distributors has increased since the reform was introduced,as exclusive dis-tributors are more experienced in managing the stores and knowledgeable about local markets.Investment Thesis(Continue)Sources:C64、GIS Research Figure 9:Channel Reforms Introduced in 2016:Before(left)&After(right)60%of stores are now directly operated by exclusive distributors Xtep GroupExclusive DistributorsLayer 2 DistributorsLayer 3 DistributorsLayer 4 DistributorsAuthorized RetailersStore OperatorsXtep Group40 Exclusive Dis65、tributors3,600 StoresAuthorized Retailers2,400 Stores 10 Another aspect of the reforms was improving per-store profitability,resulting in im-provement over time.Xtep has faced intense competition since the industry down cycle in 2011,and it has affected the profitability of each store at the micro l66、evel.Like other retailers,Xtep has taken measures to resolve the issue to improve the financial posi-tion of distributors and provide sustainability for Xteps sell-in(wholesale sales at the Company level).Specifically,these measures include introducing an enterprise resource planning(ERP)system to m67、onitor in-store inventory levels and improve the in-store experience.To put more emphasis on the customer experience,Xtep also closed down smaller shops and opened bigger stores to cater for consumers who prefer to try on more products in physical stores Over the past few years,the number of Xtep st68、ores has been reduced to optimize store performance.The total store count dropped from 7,360 in 2013 to around 6,000 in 2017.Per-store revenue has fluctuated,but the growth momentum resumed in 2017,showing the results of the“3+Revolution”,with professional sports gear driving perfor-mance.Store numb69、er reduced but revenue per store improved Figure 10:Store of“6s”Generation Better Customer Experience and Equipped with ERP System Sources:Company Figure 11:Number of Xtep Stores Sources:Company,CGIS Research estimates 7,360 7,110 7,000 6,800 6,000 6,350 6,600-14%-12%-10%-8%-6%-4%-2%0%2%4%6%8%0 1,0070、0 2,000 3,000 4,000 5,000 6,000 7,000 8,000Store CountsYoY(RHS)11 We believe that the momentum will continue and that the Company will resume growth in both store numbers and store productivity.For 2018E,the Company aims to expand the number of stores.We estimate Xteps store count will increase by a71、round 6%to 6,350 and that wholesale revenue per store per year will increase by 7%to RMB721k.This should be in line with Xteps SSSG momentum.Figure 12:Wholesale Revenue Per Xtep Store(RMB000/year)Sources:Company,CGIS Research estimates Figure 13:Same Store Sales Growth(In Terms of Retail Value)of Xt72、ep Sources:Company,CGIS Research 590 683 658 651 674 721 757-25%-20%-15%-10%-5%0%5%10%15%20%0 100 200 300 400 500 600 700 800FY2013 FY2014 FY2015 FY2016 FY2017 FY2018EFY2019ERevenue per store(RMB000/year)YoY(RHS)mid S.D.high S.D.high S.D.mid S.D.mid S.D.mid S.D.mid S.D.mid S.D.low S.D.mid S.D.mid S.73、D.high S.D.low-teensmid-teens0%2%4%6%8%10%12%14%16%0%2%4%6%8%10%12%14%16%1Q20152Q20153Q20154Q20151Q20162Q20163Q20164Q20161Q20172Q20173Q20174Q20171Q20182Q2018SSSG(in terms of retail value)12 O2O Model to Co-ordinate E-commerce and Distributors Unavoidably,Xteps well-performing online channel,which co74、ntributed 20%of reve-nue in 2017,will put pressure on the Companys distributors.The competition between online and offline channels has always been a problem for brand owners,but Xtep has adopted an O2O business model to tackle the problem.At end-2017,50%of the ex-clusive distributors had joined the75、 O2O programme.We expect the increasing partici-pation rate to benefit the Company in both store efficiency and inventory turnover.First,on the product side,Xtep introduced exclusive online products,which account for 50%of total SKUs.This prevents online products from cannibalizing the sales of its 76、physical stores.Online-exclusive products are also more easily produced and enjoy higher turnover.The more popular products can also be made available in physical stores later,allowing distributors to enjoy the benefits as well.Second,Xteps online channels are also a means to improve inventory turno77、ver.If cer-tain items experience slow turnover in physical stores,Xteps headquarters can allow these items to be moved to the e-commerce platform for special promotions.Mean-while,Xtep has adopted an inventory-sharing system,whereby HQ and distributors co-ordinate to optimize inventory levels.For ex78、ample,its e-commerce channel carries low inventory of certain products that are available on all channels.With co-ordination,products ordered by consumers online can be delivered by nearby offline distributors.This results in faster delivery and optimizes inventory turnover.50%of SKUs in e-commerce 79、is online-exclusive 13 (3)Earnings Show Resiliency from 2018E Onwards Although Xtep has introduced reforms since 2015,their impact cannot yet be directly seen in the overall financials.The main reason is that even though the newly intro-duced products were selling well,the Company had to deal with i80、ts legacy problems.After dealing with these problems,we expect the positive influence of the reforms to be reflected in the financials.We expect both revenue and profit to return to positive growth from 2018E onwards.We currently forecast revenue growth in FY2018E of 9%,but operating profit could gr81、ow by 37.4%.Subsequently,we expect operating margins to continue to expand as the Company can achieve operating leverage as revenue recovers.There were two major issues that Xtep had to deal with:(1)old inventory that was in-consistent with the new brand image,and(2)repositioning of an underperformi82、ng seg-ment(Xtep Kids).These issues were tackled in 2017 and will not affect the Company starting in 2018E.No More One-off Items Dragging Down Operating Profit Xteps 2017 results were greatly impacted by a one-off item:inventory buy backs.Be-cause of its transformation,there was inconsistency betwee83、n the new and old invento-ry.Xtep decided to buy back the old inventory produced prior to 31 Dec 2015 from dis-tributors,which caused a loss of RMB120.8m in 2017.However,this will not be repeat-ed in the years ahead.We believe the product and marketing strategy was effective,and Xteps inventory at t84、he distributor level was reduced gradually as well.Investment Thesis(Continue)Sources:Company,CGIS Research estimates Figure 14:Revenue of Xtep and Forecast We expect OP in 2018E to grow 37.4%YoY 5,550 4,343 4,778 5,295 5,397 5,113 5,575 6,160-25%-20%-15%-10%-5%0%5%10%15%0 1,000 2,000 3,000 4,000 5,85、000 6,000 7,000FY2012FY2013FY2014FY2015FY2016FY2017FY2018E FY2019ERevenue(RMB m)YoY(RHS)Sources:Company,CGIS Research estimates Figure 15:Operating Profit of Xtep and Forecast 1,131 895 809 921 917 725 996 1,139-30%-20%-10%0%10%20%30%40%50%0 200 400 600 800 1,000 1,200FY2012FY2013FY2014FY2015FY2016F86、Y2017FY2018E FY2019EOperating Income(RMB m)YoY(RHS)14 Xtep Kids Will Not Be a Drag Xtep also undertook a series of reforms for other non-performing units during the“3+Revolution”.Xtep Kids was a key unit for restructuring.Instead of expanding aggres-sively,Xtep decided to scale back the Xtep Kids un87、it,and this is expected to continue in 2018E and beyond.The revenue contribution from Xtep Kids in 2017 has been mini-mal,so we believe this will enhance the Companys margins.Initiate with BUY Our current EPS forecast for Xtep for FY2018E/19E/2020E is RMB0.26/0.32/0.36,re-spectively,implying EPS gro88、wth of 40.7%/21.6%/12.6%over three years,or an EPS CAGR of 24.4%in FY2017-FY2020E.The Company is also financially sound as it has been in a net cash position since its IPO in 2008(net cash in 2017:HK$2.87bn).We believe Xtep is a resilient domestic company,which will benefit from the growing market i89、n China for sporting goods.Initiate with BUY.Our target price of HK$6.30 is based on 16x 2019E PER.The target PER multiple is higher than its historical valua-tion range,but we believe the re-rating since late 2017 will be maintained.The re-rating started in 2017,when the market realized Xteps resul90、ts had bottomed.Our 16x 2019E PER also implies a 1x PEG ratio,based on the 17.0%EPS CAGR between FY2018E and FY2020E.12345671/1/201310/4/201318/7/201325/10/20131/2/201411/5/201418/8/201425/11/20144/3/201511/6/201518/9/201526/12/20153/4/201611/7/201618/10/201625/1/20174/5/201711/8/201718/11/201725/2/91、20184/6/2018HKD19x16x13x10 x7xFigure 16:Forward PER Band Sources:Bloomberg,CGIS Research 15 1.Slowdown in SSSG Our forecast is based on the assumption that Xteps SSSG will remain positive,so that overall revenue will continue to expand,and operating leverage will improve.If SSSG is flat or even nega92、tive,it could hurt both overall revenue and operating profit.The slowdown in SSSG can be caused by factors such as unsatisfactory product launches,unfavourable reaction to marketing campaigns,or intensified competition among different brands.This is particularly applicable to Xtep,as it relies on pr93、ofessional sports products for growth.Running is the area Xtep specializes in,but other brands are diverting more resources to this sport,making Xtep more vulnerable if the competition is tougher than expected.2.Risk of Inventory Position Worsening,Leading to Another Inventory Buy-back Xteps invento94、ry position has improved over past few years,but it could worsen in 2018E and onwards.Factors affecting overall sales,such as intensified competition,could cause this potential problem.In addition,some old inventory may be unsellable even at deep discounts.This would put pressure on the financial po95、sition of retailers and franchises.If the problem intensi-fies,it may have a negative financial impact,such as the need to write off inventory or buy back inventory from retailers,causing a one-off loss.Xtep carried out a one-off inventory buyback in 2017.There is no guarantee that the Company will 96、not do this again in the years ahead if the inventory position worsens.3.Worse-than-expected SG&A Control Our estimate of Xteps turnaround rests on the assumption that the Company is able to control its costs well.The sponsorship of marathons and endorsements by various celebrities are major expense97、 items for Xtep.If the Company has to spend more than expected on additional promotional and marketing activities to match its competitors,it may cause its SG&A ratio to go up unexpectedly,trimming its OPM.Company Description In 2002,Xtep International established its own sportswear brand,XTEP,which98、 is a leading professional sports brand in China.The Company manages an extensive distri-bution network,with exclusive distributors that operate approximately 6,000 stores nationwide,covering 31 provinces,autonomous regions and municipalities across Chi-na.Xtep International is engaged principally i99、n the design,development,manufactur-ing,sales and marketing,and brand management of sports footwear,apparel and ac-cessories.Xtep International was listed in Hong Kong in June 2008.Ding Shui Po&Family owns 60.06%of the Company.Risks 16 免責聲明免責聲明 此研究報告并非針對或意圖被居于或位于某些司法管轄范圍之任何人士或市民或實體作派發或使用，而在該等司法管轄范圍內100、分發、發布、提供或使用將會違反當地適用的法律或條例或會導致中國銀河國際證券(香港)有限公司(“銀河國際證券”)及/或其集團成員需在該司法管轄范圍內作出注冊或領照之要求。銀河國際證券(中國銀河國際金融控股有限公司附屬公司之一)發行此報告(包括任何附載資料)予機構客戶，并相信其資料來源都是可靠的，但不會對其準確性、正確性或完整性作出(明示或默示)陳述或保證。此報告不應被視為是一種報價、邀請或邀約購入或出售任何文中引述之證券。過往的表現不應被視為對未來的表現的一種指示或保證，及沒有陳述或保證，明示或默示，是為針對未來的表現而作出的。收取此報告之人士應明白及了解其投資目的及相關風險，投資前應咨詢其獨立101、的財務顧問。報告中任何部份之資料、意見、預測只反映負責預備本報告的分析員的個人意見及觀點，該觀點及意見未必與中國銀河國際金融控股有限公司及其附屬公司(“中國銀河國際”)、董事、行政人員、代理及雇員(“相關人士”)之投資決定相符。報告中全部的意見和預測均為分析員在報告發表時的判斷，日后如有改變，恕不另行通告。中國銀河國際及/或相關伙伴特此聲明不會就因為本報告及其附件之不準確、不正確及不完整或遺漏負上直接或間接上所產生的任何責任。因此，讀者在閱讀本報告時，應連同此聲明一并考慮，并必須小心留意此聲明內容。利益披露利益披露 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