Securities Recommendation: XTEP Running Shoes Grow Strongly

Orders for the fourth quarter of XTEP International (1368) 10 recorded a year-on-year growth of 25% above expected, mainly driven by sales growth.

Among footwear products, XTEP's main focus, running shoes, recorded a year-on-year growth of 43%, indicating that the company has successfully implemented a number of promotional activities for running events.

With the upcoming World Cup, XTEP launches many clothing products linked to soccer.

In August, 10, it will launch the "XTEP Bermingham series".

XTEP and Taobao network form a strategic partnership to promote online business activities, which, in our view, will benefit the company's growth in online shopping in the long run.

We raised the income of XTEP in the 10 fiscal year to 12 fiscal year 0.7%, 0.7% and 0.9%.

However, by rising raw material costs and rising wage costs in China, we lowered XTEP's 4.5% profit in the 10 fiscal year.

XTEP's latest closing market price is equivalent to a 10 year average price earnings ratio of 10.4%.

Because of its increasing international brand awareness, coupled with the growth potential brought by cooperation with Taobao, Bermingham and Disney, we believe that the discount to the industry's average price earnings ratio is unreasonable.

We use the cash flow algorithm to calculate the target price of XTEP, because the profit visibility is improved.

We reiterated our buy rating for XTEP, but lowered the target price from 7.48 yuan to 7.39 yuan.

In the fourth quarter of 2010, XTEP's clothing products reached an annual growth of 26%, mainly because of the longer winter in late 09 and early 10.

On the other hand, the order volume of footwear products also increased by 23% year on year, due to the strong growth of running shoes.

Push XTEP Bermingham series

XTEP has not directly sponsored any team to participate in the world soccer tournament. XTEP has launched a special soccer series to catch the business opportunities brought by the world cup.

In addition, in the coming August, XTEP will display "XTEP Bermingham series" products in its first quarter of 2011.

Seen in the growth of online shopping, the company has formed a strategic partnership with Taobao, which is expected to bring XTEP an annual turnover of RMB 80 million to 90 million in fiscal year 11.

Consistent with economic recovery, market demand for raw materials and labor has increased raw material costs and labor costs.

We believe that the average unit price increase per unit number will not cover the rise of these costs.

Therefore, we lowered our profit forecast for fiscal year 10 to fiscal 12.

XTEP's latest closing price is equivalent to a 10.4% discount to the industry's 10 fiscal year average price earnings ratio.

We reiterated the buy rating for XTEP, but lowered the target price from 7.48 yuan to 7.39 yuan.