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　　机构：中金公司

　　评级：HOLD

　　目标价：4.29港元

　　2017 results beat expectation 

　　Xtep International announced 2017 results: Revenue sliPPed 5.2% to Rmb5,113mn; net profit of Rmb408mn was down  22.7%, less than the 30% we originally forecast and the 25–35% the company previously warned of. Net of a Rmb121mn one-off loss due to product repurchases, net profit edged up 0.2%. Including a special dividend of HK$0.10, Xtep paid a DPS of HK$0.23 . 

　　Retail overview: E-business contributed over 20% of sales, while offline stores totaled around 6,000 , and 250 of these are Xtep Kids stores. Store efficiency improved on increases in stores directly operated by distributors and more renovated stores. SSSG in 2017 was in the mid-single digits. Retail inventory remained below the industry average at four months. Gross margin rose 0.7ppt to 43.9%. SD&A expense ratio rose 4.8ppt on higher A&P and R&D costs, product buybacks and inventory write-downs. 

　　Trends to watch 

　　SSSG continued to improve in January–February . We expect channel restocking and positive sales growth for the whole year. Xtep intends to launch footwear of international standards this year thanks to extensive R&D efforts. 

　　Earnings forecast 

　　We raise our 2018 and 2019 EPS forecasts by 19.4% and 20.6% to Rmb0.24 and Rmb0.28 . 

　　Valuation and recommendation 

　　The stock is trading at 12x 2018e and 11x 2019e P/E. We maintain HOLD but raise our target 24.3% to HK$4.29 . We believe a strategic transformation in 2017 will drive long-term organic growth despite short-term pains, but Xtep should be cautious in initiating a multi-brand strategy. 

　　Risks 

　　Retail performance recovers more slowly than expected. 

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