XTEP'S First Rating Was Overweight, And The Three Year Reform Is At Stake.
Recently, Guotai Junan released its Research Report on XTEP International Holdings Limited (hereinafter referred to as XTEP) (01368-HK) for the first time.
Guotai Junan pointed out in the research report that XTEP's early three years' reform results showed that the turning point of the performance was coming, and the recent joint venture acquisition went into the high-end market, and the future growth space opened. The net profit of 2019-2021 years is expected to be 7.93, 9.41, and 1 billion 103 million yuan, up 20.7%, 18.8% and 17.2% compared to the same period. The current market value corresponds to about 13 times that of PE in 2019.
It is worth mentioning that at the beginning of the month, the latest research report issued by Da he securities raised XTEP's rating and raised the target price slightly to raise the target price from 5.5 yuan to 5.8 yuan.
Two times a month, the agency issued positive news. Where did XTEP win?
In recent years, with the increasing fitness and healthy lifestyle, consumption patterns are facing spanformation and upgrading. Healthy consumption and personalized consumption will also replace low-end consumption and mass consumption. In order to leave a place in the competition, XTEP has made many preparations. This preparation is three years. After three years of restructuring, XTEP began to show a strong recovery.
Income grew faster and net profit increased substantially.
Benefit from brand positioning, product innovation, retail network and operation management three aspects of the gradual effect of reform, the number of stores expansion, same store sales growth. In 2018, the company's revenue grew 24.81% to 6 billion 399 million yuan, a record high since listing.
According to the category, the income of footwear products increased by 20.5% to 3 billion 925 million yuan in 2018, and clothing increased by 32.3% to 2 billion 327 million yuan over the same period, and accessories increased 36.5% to 131 million yuan over the same period.
As product strength was strengthened and sales rate increased, gross profit margin and net interest rate were improved simultaneously. Net profit was 657 million yuan a year, an increase of 61% over the same period. Gross profit increased by 26% to 2 billion 828 million yuan per year. The superposition of accounts receivable has been reversed. The net profit of the parent has increased 60.86% to 657 million yuan over the same period, and the profit growth rate is higher than the income growth.
In 2018, XTEP shoes accounted for 61.5% of total revenue and 1 billion 790 million yuan gross profit. From past data, XTEP's revenue is five years since 2014, and footwear sales account for over 60% of total revenue. Among the four major domestic sports brands, the proportion of footwear products in XTEP's sales is the highest, while the other three similar brands, Anta, Lining and 31st degree shoes, account for less than 50% of their footwear revenue.
For XTEP's revenue growth and net profit growth, XTEP said in its earnings report that it mainly came from three aspects: 1. a sound product mix and good acceptability, resulting in a higher sales rate and an increase in replenishment orders from total agents. 2. due to the inventory repurchase in 2017, the demand for total replenishment was greater. 3. due to the upgrading of stores and the optimization of retail network, the sales performance of downstream retailers is strong.
In 2018, the gross profit margin of the company increased by 0.4 percentage points to 44.3% (2017: 43.9%). The overall gross profit margin rose mainly due to the high praise of consumers on functional running shoes.
Because the company repositioned professional sports brand, the average selling price of functional products was higher, so the average selling price of footwear and clothing products had been improved. As the group maintains effective cost control through its own and outsourced production to the overall supply chain, the increase in material costs and production costs is absorbed by the average price increase, thereby driving up gross margin.
From the company's current earnings, as of the year ended December 31, 2018, the other income of the group mainly came from the government's subsidy income of about 94 million 700 thousand yuan (2017: 79 million 400 thousand yuan).
The income from financial assets investment and structured bank deposits is about 82 million 600 thousand yuan (2017: RMB 63 million 200 thousand yuan), which is the interest income of financial deposit products.
Sales and distribution expenses rose sharply
For the year ended December 31, 2018, the sales and distribution expenses of the group amounted to about 1 billion 357 million 300 thousand yuan (2017: RMB 911 million 400 thousand yuan), accounting for 21.3% of the group's revenue (2017: 17.8%). The increase in sales and distribution expenses is mainly due to the increase in advertising and promotional expenses. The cost of advertising and promotion was about 968 million 200 thousand yuan (2017: RMB 658 million yuan), accounting for 15.2% of the group's revenue (2017: 12.9%).
The increase in advertising and promotion costs is mainly due to increased investment in channel development and market penetration, endorsement by entertainment celebrities, promotion of running events and expenses related to XTEP running clubs.
Operating margins rose slightly
As of December 31, 2018, the operating profit margin increased by 2.2 percentage points to 16.4% (2017: 14.2%). This was mainly due to the decrease in gross margin, other income and income increase and general and administrative expenses ratio to 9.8% (2017: 15%), but partly offset by the increase in sales and distribution expenses to 21.3% (2017: 17.8%).
Due to the upgrading of stores and the optimization of retail network, the sales performance of downstream retailers is strong.
With the centralization of the retail network of the company, the image of the store is constantly upgrading. The double digit growth of the same store in 2018 came mainly from the common reform effects of channels and products.
The company's double-digit growth in the same store sales in 2018 was significantly ahead of the industry, and retail channel inventory discounts were healthy. In the 4 quarter of 2018, the company's Treasury sales ratio remained at close to 4, and the discount was 7.5-8, which was at a fairly healthy level. In the first 2 months of 2019, retail sales continued the strong momentum in the 2018 fourth quarter.
In terms of channel, after 3 years of retail oriented spanformation, the number of shops increased by about 200 in 2018. The newly opened shop area was over 120 square meters. 75% of the shops had been replaced by eight generation stores. The average store efficiency increased to about 150 thousand, and the electricity supplier accounted for over 20%.
Among them, the online channel, in 2018, the company's electricity supplier revenue grew by over 40% over the same period, accounting for 20%, and the highest running shoes brand of Tmall. At the same time, the company's O2O strategy continues to advance and now covers 60% of the retail network.
On the product side, due to company positioning, professional running and fashion life, marathon running shoes list is ahead. There are about 6230 stores at the end of the year. Among them, there are about 200 stores opening, accounting for about 60% of the total retail outlets.
After 3 years of spanformation, the performance side and the retail side have shown good growth momentum, and have laid a good foundation for long-term growth through the layout of overseas and multi brands.
XTEP expands overseas + big name joint venture, prospects can be expected
At present, XTEP is actively expanding in Asian markets such as India, Thailand and Vietnam, and achieved preliminary satisfactory results through recent market tests. The newly opened shop in Hanoi, Vietnam, has an area of 450 square meters, and the store is leading the shopping center. Southeast Asian market and domestic consumers have similar culture or background, and through the cooperation of the company's retail team and local resources, the marketable products are expected to expand the market scope.
In addition, XTEP announced in March 4th that it had invested 155 million yuan with the US Wolverine to establish a joint venture to develop its business in China, and concluded a number of joint venture agreements. The new joint venture will be responsible for the development, marketing and distribution of shoes, clothing and accessories under the brand of Saucony (Saint John's) and Merrell (brand) in mainland China, Hongkong and Macao.
In May 2nd, XTEP International announced through its wholly-owned Affiliated Companies and E-LandWorldCompany, Ltd and E-LandUSAHoldingsInc. (collectively known as "love and love group") to conclude a share purchase agreement. XTEP will make a cash price of 260 million US dollars (about 1 billion 750 million yuan) to acquire all the issued shares of E-LandFootwearUSAHoldingsInc., with the ultimate holders of K-Swiss (Gai Shiwei), Palladium (palatine) and Supra. The acquisition will be funded by internal funds and is expected to be completed by the end of July 2019.
By acquiring these brands, XTEP can meet different target consumers and complement their own brand portfolios at the same time. The acquisition will push XTEP into a global sporting goods company that can meet different consumer needs. These brands can benefit from XTEP's huge sales network, leading R & D technology and supply chain resources, enabling them to make full use of potential in the fast growing sports market of Greater China.
Obviously, XTEP's development can be expected in the future.
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