特步国际(01368) 　　2Q17 trade fair decelerated. Order value for 2Q17 trade fair growth decelerated to alow-single-digit yoy, further decelerated from a mid-single-digit in 1Q17 andhigh-single-digit in 2H16. The growth was mainly driven by higher average sellingprice which offset a soft volume. By category, shoes fared better than apparel.Similar to Anta (2020 HK, HKD22.15, Hold, TP HKD19.9), Xtep is moving to morereplenishment order to control channel inventory which has led to a slower pre-ordergrowth. We believe this would be beneficial to long term growth of the company butcould lower investors’ visibility to growth in the future. 　　3Q16 retail SSSG maintained. Same-store-sales growth during 3Q16 came in at amid-single-digit growth yoy, on par with the previous quarter. Retail discount (at 25%off) narrowed slightly both qoq and yoy. However, channel inventory likely has seenincreased pressure at 4.5-5 months of sales in end of 3Q16 (from 4-5 months in end2Q16) but we are overly concerned at this stage given seasonality could have led toqoq volatility. While there is no disclosure on e-commerce, we believe Xtep to seestrong growth during the quarter too given strong performance across key peersincluding Anta and Li Ning (2331 HK, HKD5.60, Buy, TP HKD6.2). 　　Maintain Buy on valuation. Xtep share price has been under pressure quarter-todate, -11% the HSI flat. We believe concerns over a potential slowdown are in theprice already. We fine-tune our earnings forecast for FY16-18e down by 1-2% drivenby a slower core brand growth, which was partly offset by higher e-commerce growth.We also incorporate our FX team’s mid-2017e RMB/HKD forecast of 1.14 (from 1.13).We maintain our TP of HKD4.7 based on unchanged 13.5x FY16e PE. With c32%upside and trading at a 30% discount to sector FY17e PE with net cash being 29% ofmarket cap, we maintain our Buy rating on valuation. Downside risks includelower-than-expected sales from intensified competition and/or unsuccessful brandpositioning, and higher-than-expected operating expenses and effective tax rate thatmight result in lower-than-expected net margin.