Guosen Securities published a research report stating that Chow Tai Fook (01929), as a leading company in the gold and jewelry industry, has a leading position in product iteration and channel layout. Under the trend of the increasing importance of industry brand competitiveness in the future, the company's leading advantages are expected to be continuously strengthened. Considering the suppression of consumer demand due to high volatility of gold prices and the company's continuous promotion of channel store adjustment and optimization, Guosen Securities lowered the net income of the company's 2025-2027 fiscal year to HKD 7.038/7.682/8.362 billion (compared to previous values of HKD 7.249/8.143/8.976 billion), corresponding to PEs of 11.2/10.3/9.5 times, and maintained a "better than market" rating.

Subject:

The company released unaudited operating data for the period from April to June 2024, with overall retail sales value down 20% year-on-year, of which retail sales value in China (excluding Hong Kong, Macau and Taiwan) decreased by 18.6% year-on-year, and that in Hong Kong, Macau and other markets fell by 28.8%.

Guosen's retail perspective:

1) In terms of same-store sales, same-store sales in China (excluding Hong Kong, Macau and Taiwan) decreased by 26.4% year-on-year, and those in Hong Kong, Macau and other markets decreased by 30.8% year-on-year. 2) In terms of opening new stores, the company continues to implement the plan of strengthening the efficiency of individual stores, adjusted 95 low-efficiency stores during this quarter, including 91 for the Chow Tai Fook brand and 4 for other brands, with a net number of 7659 stores at the end of the period. The overall operating performance of the company in the second quarter was under pressure, affected by factors such as the high base of demand after last year's epidemic, objective fluctuations in terminal demand due to high gold prices, etc.

In the medium and long term, the gold and jewelry industry is expected to maintain a steady growth trend under the support of consumer value-preservation demand and the continuous improvement of product design. As a leading company in the gold and jewelry industry, Chow Tai Fook has a leading position in product iteration and channel layout. Under the trend of the increasing importance of industry brand competitiveness in the future, the company's leading advantages are expected to be continuously strengthened. Considering the suppression of consumer demand due to high volatility of gold prices and the company's continuous promotion of channel store adjustment and optimization, Guosen Securities lowered the net income of the company's 2025-2027 fiscal year to HKD 7.038/7.682/8.362 billion (compared to previous values of HKD 7.249/8.143/8.976 billion), corresponding to PEs of 11.2/10.3/9.5 times, and maintained a "better than market" rating.

Comment:

Short-term sales growth is under pressure, and product structure optimization is needed.

Based on the operating data for the period from April to June 2024, retail sales value in China (excluding Hong Kong, Macau and Taiwan) decreased by 18.6% year-on-year, and same-store sales decreased by 26.4% year-on-year. Retail sales in Hong Kong, Macau and other markets fell by 28.8% year-on-year, and same-store sales fell by 30.8%.

In terms of specific categories, the sales of gold and inlaid products have both declined, but in the Chinese (excluding Hong Kong, Macau and Taiwan) market, the sales of high-priced products with higher gross margin as a percentage of gold product sales increased from 5.7% in the same period last year to 15.8% during the quarter, which helps to improve the company's gross margin. In addition, in terms of online retail, the contribution of e-commerce to the retail value in the Chinese (excluding Hong Kong, Macau and Taiwan) market during the quarter was 5.8%, and the sales volume accounted for 13.8%.

In terms of store quantity, the company continues to implement the plan of strengthening the efficiency of individual stores, adjusted 95 low-efficiency stores during this quarter, including 91 for the Chow Tai Fook brand and 4 for other brands, with a net number of 7659 stores at the end of the period.