Daiwa released a research report stating that it made only minor adjustments to its 2025 forecast for XTEP INT'L (01368), but downgraded its 2026 earnings per share forecast by 2% to reflect potential slowdown in revenue growth of the core XTEP brand. The firm reiterated its "Buy" rating on the company, with valuation based on an unchanged 12x P/E ratio applied to the average EPS for 2025-2026 (previously based on 2025 EPS alone). The 12-month target price was raised from HK$6.6 to HK$7.0.

XTEP INT'L's net profit in the first half of this year increased 6.4% year-on-year on a comparable basis, exceeding the firm's and market consensus expectations by 19% and 17% respectively. This was mainly driven by strong operational cost control and better-than-expected operating margin in the professional sports business (Saucony and Merrell brands), which increased 6.1 percentage points year-on-year to 10%.

Daiwa noted that despite the better-than-expected results, it made only minor adjustments to its 2025 forecast for XTEP, as it expects operating margins to weaken in the second half due to seasonal factors, while Saucony's marketing activities (and related costs) in H2 may increase.

Daiwa believes the most notable aspect of XTEP INT'L's performance is that despite slower revenue growth in H1 2025, operating margins in both mass market and professional sports segments remained resilient. However, given product launches and store openings in H2 (including the launch of Triumph 23 in July 2025 and lifestyle products in Q4 this year), the firm believes margins will be difficult to sustain in H2 2025.

Daiwa also considers that XTEP INT'L's children's apparel business will provide further upside potential, with management expecting this business to achieve growth exceeding the adult market in the foreseeable future. On a comparable basis, the firm forecasts the company's earnings growth of approximately 5% in 2025.