CMSC Hong Kong: Maintains a "Buy" rating on XTEP INT'L (01368) with a target price of 7.7 Hong Kong dollars.

CMSC Hong Kong released a research report stating that XTEP INT'L (01368) reaffirmed its full-year performance guidance for 2025, and expects strong growth in the fourth quarter, while maintaining its profit forecast for 2025-27 unchanged. Due to the continuous growth driven by "X Young" and Saucony, the target price of the company is based on a 12.5 times 2026 mid-term price-earnings ratio, which is still at the long-term average valuation level since 2015, maintaining a target price of HK$7.7 and a buy rating. XTEP INT'L (01368) announced its operating performance for the third quarter of 2025, with retail sales of its main brand recording a low single-digit year-on-year growth, and Saucony's retail sales growing by more than 20% year-on-year, in line with the bank's previous NDR feedback report expectations. Despite concerns about the impact of e-commerce business adjustments on the double eleven promotion, the stock price fell by 2% in the short term, with management expecting the e-commerce business to gradually rebound in the fourth quarter during a conference call. Main brand: Retail sales in the third quarter recorded a low single-digit year-on-year growth, and despite the challenges faced by the overall consumer market, the main brand continued to maintain stable growth momentum. This growth was mainly due to the double-digit percentage expansion of e-commerce sales and strong demand for running shoes. In addition, the continuous updates of the "X Young" series also had a positive impact on the overall brand performance. The average retail discount remained at 25%-30%, with channel inventory turnover at 4-4.5 months, consistent with the information obtained by the bank in early September at the NDR. Saucony: Continuing to contribute high growth to the group, retail sales in this quarter grew by over 20% year-on-year. This strong performance was mainly due to over 30% growth in offline business, driven by consumers' continued increase in demand for high-end sports shoes and running shoes. At the same time, the brand made strategic operational adjustments to its online business this quarter. XTEP focused on reducing the exposure of low-priced products and tightening discounting, which limited the growth performance of this channel in the short term. However, management expects that this more cautious operational strategy will help improve profit margins and gradually revive e-commerce sales in the fourth quarter. Key risks: Irrational destocking, operational risks of Saucony.