XTEP'S Strong Growth In Orders In The First Quarter Of 11

BCFC- XTEP brand products are popular.

Despite its debut in the first quarter of 2011, the brand responded quite positively.

BCFC- XTEP product line offers clothing, jackets and accessories that are rich in football concepts.

In addition, XTEP also introduces professional basketball boots and training shoes with functional and BCFC elements.

A good average sales price growth should guarantee gross margin.

In the first quarter of 2011, the average sales price of clothing and footwear products recorded double-digit and unit digit growth respectively, which was higher than that of the second quarter, the third quarter and the fourth quarter of 2010.

Referring to the results of the first half of 2010, the average sales price of clothing and footwear products increased by 13.9% and 6.6% respectively, while the gross margins of clothing and footwear products increased by 2.5 percentage points and 1.4 percentage points respectively.

Although the discount for shoe sales of distributors was reduced by 2 percentage points to 40%, the gross profit margin of clothing products in the first half of 2010 was still higher than that of footwear products, showing that the change in average selling price is a more important factor for gross margin changes.

We maintain the prediction of XTEP brand's gross profit margin increased by 0.3 percentage points in FY11.

Driven by a double-digit increase in the average selling price in the first quarter of 2011, we expect that the gross profit margin of clothing products in FY11 should be higher than that of footwear products.

Maintain "buy" rating and target price of HK $7.54.

The same store sales grew nearly 10% in August, while sales channel inventory maintained about 4-4.5 times the monthly sales level.

In the future, XTEP will continue to use its different marketing strategies to focus on entertainment, running and football.

The company's current valuation is still low because: (1) when the FY11F price earnings ratio is compared with the earnings per share CARG20.7% of FY10F - FY12F, (2) the expected dividend yield of 4.2% in the year of FY10F; (3) if deducting the estimated net cash at the end of the year of FY11 at RMB 2 billion 800 million yuan, the FY11F earnings per year after deducting the cash value is only 9.6 times; (4) according to Bloomberg prediction, compared with Lining (24.85, -0.10, -0.40%, real time quotes) (2331.HK) and 0.9 times of XTEP sports (-0.10, real time quotes), the 0.6 times of XTEP is quite attractive.