CICC has released a research report maintaining its FY26/27 EPS forecasts for CHOW TAI FOOK (01929) at HK$0.87/HK$0.93. The current stock price implies 18x/16x FY26/27 P/E. The firm reiterates its Outperform rating and target price of HK$19.45, representing 22x/21x FY26/27 P/E and offering 28% upside potential from current levels.
In 1HFY26, the company reported revenue of HK$39 billion, down 1.1% YoY, with attributable net profit flat at HK$2.5 billion, slightly below expectations due to gross margin pressure. An interim dividend of HK$0.22 per share was declared, representing an 86% payout ratio. Key insights from CICC:
**Operational Efficiency Improvements Continue, Higher-Priced Jewelry Gains Share** 1HFY26 revenue declined 1.1% YoY, with the pace of decline narrowing significantly sequentially. By region: - Mainland China revenue fell 2.5% to HK$32.2 billion as the company optimized its store network (net closure of 16 self-operated and 595 franchised outlets). Same-store sales grew 2.6%/4.8% for self-operated/franchised stores, while new store monthly sales jumped 72% YoY to over HK$1.3 million. - Hong Kong, Macau & overseas markets saw 6.5% revenue growth to HK$6.8 billion, benefiting from retail recovery and tourist rebound, with HK/Macau same-store sales up 4.4%.
By product category: - Higher-priced jewelry sales rose 9.3%, increasing revenue share to 29.6% (31.8% in mainland China). - Priced gold jewelry and watches declined 3.8%/10.6% respectively.
**Effective Cost Control Mitigates Margin Pressures** Despite gold price volatility and sales timing differences, 1HFY26 gross margin dipped only 0.9ppt YoY, supported by product/channel mix. Sales/administrative expense ratios improved by 0.9ppt/0.3ppt through channel optimization and strict cost control. Gold borrowing losses reached HK$3.1 billion due to rising gold prices, keeping net profit flat at HK$2.5 billion.
**Brand and Product Enhancement Initiatives** CHOW TAI FOOK continues focusing on premium product development and brand elevation, launching its first high jewelry collection "Harmony East" in June. Three signature collections ("Forbidden City", "Heritage Blessing", "Heritage Joy") generated HK$3.4 billion sales in 1HFY26 (vs. HK$2.3 billion in 1HFY25).
**Recent Trends** From early October to November 18, total retail sales grew 34% YoY, with mainland self-operated/franchised same-store sales up 39%/49% and HK/Macau up 18%. CICC remains positive on sustained sales recovery and operational efficiency gains.
**Risks**: Significant gold price fluctuations, intensifying industry competition, slower-than-expected retail recovery or channel optimization.
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