CMSC published a research report maintaining its "Buy" rating for XTEP INT'L (01368), reaffirming the company's guidance for full-year results in 2025 and anticipating strong growth in the fourth quarter. The brokerage has left its profit forecast for 2025-2027 unchanged.

The target price is based on a 12.5 times mid-2026 earnings ratio, consistent with the long-term average valuation since 2015, maintaining a target price of HK$7.70 and a "Buy" recommendation.

XTEP INT'L reported its operational performance for Q3 2025, noting low single-digit year-on-year growth for its main brand's retail sales, while Saucony's retail sales grew over 20% year-on-year, aligning with expectations in the previous NDR feedback report. Despite concerns that adjustments in the e-commerce segment could impact the upcoming Double Eleven promotions, the stock dipped 2% in the short term. However, management anticipates a gradual recovery in e-commerce operations by the fourth quarter.

For the main brand: Q3 retail sales showed low single-digit year-on-year growth. Despite overall challenges in the consumer market, the primary brand continues to perform steadily. This growth is mainly attributed to double-digit e-commerce sales expansion and strong demand for running shoes. Additionally, ongoing updates to the "X Young" series positively influenced the brand's overall performance. Average retail discounts remained at 25%-30%, and channel inventory turnover was 4-4.5 months, consistent with information obtained during the NDR in early September.

For Saucony: Continued high growth contributed to the group, with retail sales increasing over 20% year-on-year this quarter. This robust performance is largely driven by over 30% growth in offline business, reflecting rising consumer demand for high-end sports and running shoes. Moreover, the brand strategically adjusted its online operations this quarter, focusing on reducing exposure to low-priced products and tightening discount levels, temporarily limiting growth in that channel. However, management expects this cautious operational strategy to help improve margins and gradually revive e-commerce sales in the fourth quarter.

Key risks include irrational inventory destocking and operational risks associated with Saucony.