JPMorgan on Xtep International: Core Brand Under Pressure, Saucony Gaining Traction; Overweight Maintained

JPMorgan keeps Overweight on Xtep International (1368.HK) after broadly in-line 1H26 results, but cuts 2026-28 earnings forecasts by 10-21% and lowers the December 2026 target price from HK$6.00 to HK$5.00, based on 10.5x 2027E P/E—below the sector's 11x—implying about 32% upside from HK$3.67 on August 31. Third-quarter retail trends show only limited improvement: weak demand and channel adjustments, including Nike's China digital-channel restructuring, should intensify promotional pressure in the second half. JPMorgan projects 2H26 revenue and profit down 5% and 35% year-on-year, with the main brand falling 7% and Saucony up 11%; net margin drops to 4.3%, down two percentage points, as DTC transition costs, brand investment and share-based expenses lift the expense ratio 1.5 points. Medium term, Saucony's offline momentum, premiumization and high-end channel expansion should keep gaining share, while the main brand's DTC transformation could normalize operating efficiency from 2027. JPMorgan forecasts 2027 revenue and profit growth of +4% and +6% with an 8.3% net margin, below consensus of +5%/+13% and 9.2%. Valuation shifts from DCF to forward P/E with a DCF cross-check at RMB4.2 (HK$5.0) per share; the current ~7.6x 2027E P/E already discounts main-brand execution risk, while FY26E dividend yield reaches 7.1%.