Performance remains stable, why is the valuation of XTEP INT'L (01368) still declining?

Despite the main brand maintaining growth, the second growth brand continuing to see high growth, and the profit level steadily climbing, why is the valuation of XTEP INT'L (01368) still not rising? It is understood that in Q1 2025, in mainland China, the retail sales of the main brand (including Wuxi Online Offline Communication Information Technology Co., Ltd. channel) achieved a single-digit year-on-year growth, while the retail sales of the second growth brand Saucony achieved over 40% year-on-year growth. Both the main brand and Saucony drive steady growth in performance, with a compound annual growth rate of revenue and shareholder net profit of 13.53% and 24.64% respectively over the past five years. In addition, the company maintains a policy of annual dividends, with the dividend amount reaching a new high in 2024. The proposed dividend per share for the year is 9.5 Hong Kong cents at the end of the period, and the full-year dividend will be 15.6 Hong Kong cents, with a payout ratio of 50%. In addition, a special dividend of 44.7 Hong Kong cents per share will be distributed during the year, resulting in a year-on-year growth in dividends of 221.7%, and the payout ratio more than doubling to 138.2%. However, investors seem not convinced, as the company's stock price did not show any significant movement after the performance announcement, and the long-term trend is still downward. The company's market capitalization has dropped for three consecutive quarters, and viewed from a yearly perspective, it has decreased by nearly 70% from its high point in 2022. So, why isn't XTEP INT'L seen favorably, and are there any investment opportunities? Stable performance, ROE nearly doubled in the past five years It is understood that over the past five years (2020-2024), XTEP INT'L has maintained double-digit growth in various performance indicators, with the profit...Curves have quickly become the new champions in the industry.Steady performance growth and continuous improvement in profit levels have enabled XTEP INT'L to actively reward shareholders. Over the past five years, the company has maintained a high dividend payout ratio of no less than 50%, and in 2024, it also distributed a special dividend for the first time. According to data from Oriental Choice, the company has distributed dividends 42 times since 2005, totaling 9.416 billion yuan, with a cumulative dividend ratio of 69.02%. The company stated that it will continue to return profits to shareholders while balancing reinvestment for future growth. It is widely believed by investment banks that the company's development is promising, with target prices generally higher than the current price. Citic Securities CICC research report indicated that XTEP's guidance for group sales growth is positive, with sales in the professional sports sector expected to grow by 30-40%, raising the target price from 5.7 Hong Kong dollars to 5.9 Hong Kong dollars; Deutsche Bank research report expressed caution towards XTEP's main brand but optimism towards Saucony, raising the target price from 6.4 Hong Kong dollars to 7 Hong Kong dollars, with a "buy" rating. Overall, there are three main reasons why XTEP INT'L is not highly regarded: first, although profits have steadily increased, they are lower than industry peers, especially being suppressed by industry leaders; second, the footwear and apparel sector lacks funding attention, with most stocks maintaining a downward trend except for the industry leader; third, the current valuation of XTEP INT'L is at the industry average level, and without considering special dividends, the dividend yield is not attractive to value investors. However, XTEP INT'L still has opportunities. With the driving force of the "XTEP + Saucony" dual brand, steady profit growth, insistence on high dividend payouts, and positive views from major investment banks, the company's valuation downside is limited, and long-term investors need to wait for the right opportunity to enter the market.