Xtep International orders for winter 2009 orders rose 16%

In May 2009, retail sales in China rose 15.2% YoY, up from 14.7% in March and 14.8% in April. We believe private consumption in China will grow stronger in the second half of the year. We expect the growth of retail sales in the social sector will exceed 15% in 2009. We believe that consumer staples, including sportswear and apparel, are more likely to benefit from the recovery in consumption. In the first quarter of 2009, the nominal GNP growth rate of central and western China was 1.6% higher than that of the coastal provinces, mainly due to the higher investment in fixed assets. The faster growth of inland areas can help narrow the income gap and stimulate consumption in these areas, which will benefit the nationwide low-end brands including Xtep . A favorable consumer climate to promote sportswear growth. Xtep International's same-store sales in March did not increase, however, in April, same-store sales growth in May increased to about 5% level. In January, same-store sales in February rose 15%, same-store sales in the first quarter increased 10%. Sales increase to improve dealer confidence. In the fourth quarter of 2009, Xtep International's orders for orders increased by 16%, not much different from its peers. For example, the orders of China Dongxiang (3818) and Li Ning (2331) in Q4 increased by 21.0% and 14.5% respectively. Xtep's gross profit margin for 2008 was 37.1%. In contrast, Anta (2020), Li Ning (2331) and China Dongxiang (3818) recorded 40.0%, 48.1% and 58.5% respectively. We believe Xtep's profit margins have the biggest room to rise, mainly because of its current discount rate to distributors of 68%, higher than its peers. In the next few years, as its size expands, the gap between the discount rate for distributors will narrow and the profit margin will rise.