Xtep produces fashionable sportswear to sell to the young in China.
STOCK VALUATIONS are unbelievably attractive everywhere, which has prompted some funds to identify good investment targets.
Recognising this, we, Aries Consulting in Hong Kong, have been busy organising various fund visits.
We had a recent outing with PRC and Taiwanese funds to visit HK- and Singapore-listed companies in the food and consumption business in China.
One of these was a PRC fashion sportswear company, Xtep International (listed on the HK Stock Exchange), which thrives on the spending power of young people - a trend that is likely to become stronger in China.
Xtep CFO Terry Ho (left) explaining his business to PRC and Taiwanese fund managers. Photo by Terence Wong.
China policy and trend
China is increasingly stimulating its domestic consumption in order to offset the negative impact of sliding export demand. One of the key initiatives is the promotion of rural consumption.
The government set a goal of doubling the income of rural residents between 2008 and 2020 in the 3rd Plenary Session of the 17th Communist Party of China. This will address the wealth imbalance between urban and rural areas.
Xtep, which has about 50% of its stores located in major agricultural provinces, is well-positioned to benefit as income in those areas rise.
Strong profit margins. Source: Xtep
Business
Xtep is engaged in the design, development, manufacturing and marketing of sportswear, including footwear, apparel and accessory products, sold under the Xtep, Disney Sport, and the Koling brands. They have more than 5,000 points of sale in China.
As the Xtep brand is positioned to be synonymous with trendy, innovative and high-quality fashion sportswear, the products are designed with three to four different themes per season.
As Chinese customers tend to emphasise design instead of functions when selecting sportswear products, Xtep’s theme-oriented collections appeal to fashion-sensitive youngsters who can only afford mid-end products.
Xtep's 1H 2008 results outpaced FY2007 with robust growth momentum:
— Turnover grew by 1.7 times to RMB1.4 bn
— Net Profit up by 2.1 times to RMB255 mn
— Gross profit margins increase to 36.8% (1H 2007: 32.2%)
Future Strategies
Sales jumped in the first six months of 2008.
The company will focus on network expansion in 2nd and 3rd tier cities with rapid economic growth. From around 5,000 outlets, Xtep plans to open 800-1,000 outlets this year for its Xtep and Disney Sport brands.
R&D is important to Xtep to develop its products and apply advanced technology. The company is also increasing its brand profile to ensure a better profit margin.
Xtep is one of the first in the sportwear industry in the PRC to deploy a marketing campaign using Hong Kong pop stars. Nicolas Tse is a Xtep spokesman. Famous Taiwanese singers Jolin Tsai and Wilber Pan have been Xtep’s spokesmen since 2007.
In addition, Xtep was the only PRC sportswear enterprise that purchased television commercial airtime during all the finals of the Beijing 2008 Olympic Games.
