Macquarie has released a report adjusting its outlook for CHOW TAI FOOK (01929). In response to gold price adjustments, the firm has lowered its net profit forecasts for the company's fiscal years 2027 and 2028 by 10.6% and 11.9%, respectively. The target valuation multiple has also been reduced, moving from a previously projected price-to-earnings ratio of 15 times for fiscal 2028 down to 10 times, aligning it with industry peers. Consequently, the target price has been cut by 35% from HK$19 to HK$12.9. However, Macquarie has reaffirmed its "Outperform" rating on the stock.
Additionally, the report notes that a solid dividend payout ratio in the range of 70% to 80% should provide support. CHOW TAI FOOK anticipates revenue growth in the mid-to-high single digits for the fiscal year ending March 2027. Same-store sales growth is projected to be in the high single to low double digits in Mainland China and Hong Kong & Macau.
The company expects its gross margin for fiscal 2027 to normalize to a range of 26.5% to 27.5%, compared to 32.3% for the fiscal year ended March 2026. Macquarie suggests there is potential upside to the company's operating margin guidance of 14% for fiscal 2027, which compares to 20% in fiscal 2026.
The report indicates that for April and May this year, same-store sales growth for CHOW TAI FOOK's self-operated and franchised stores in Mainland China were 20% and 15%, respectively, while the figure for Hong Kong and Macau was 40.6%. Following the pullback in gold prices, sales growth for gold jewelry sold by weight has outperformed that of priced jewelry.
Since its launch in April, the new "Wan Xiang" series has generated retail sales value exceeding HK$5 billion, with over 20% of sales coming from new customers. The full-year sales target for the series is set at HK$20 billion.
Macquarie states that CHOW TAI FOOK's management has prioritized product optimization and brand upgrades. The company anticipates a reduction in the number of store closures in Mainland China for fiscal 2027. During fiscal 2026, the group opened 8 newly designed luxury stores in Mainland China, with average productivity being 8 to 10 times that of traditional stores. The goal is to expand the luxury store base to 50 outlets by fiscal 2030.
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