BofA Securities released a research report, slightly raising CHOW TAI FOOK's (01929) target price from HK$17.5 to HK$17.6, equivalent to a projected 2027 fiscal year P/E ratio of 20x. The firm reiterated its "Buy" rating, citing sustained improvement in same-store sales growth as a potential driver for valuation re-rating.
For the first half of the 2026 fiscal year ending September, CHOW TAI FOOK reported a net profit of RMB 2.5 billion, largely flat year-on-year and in line with expectations. Revenue declined 1% YoY to RMB 39 billion, 3% below estimates. The gross margin for the period stood at 30.5%, lower than the projected 31.3%, but this was partially offset by a reduction in the SG&A ratio to 14%, below the expected 15.3%.
Management raised its full-year gross margin guidance for the 2026 fiscal year ending March to 31%-32%, implying a YoY increase of 1.5-2.5 percentage points, compared to an earlier forecast of a 0.8-1.2 percentage point decline. The revision reflects higher gold prices and an increased proportion of premium product sales. Additionally, the operating margin guidance was lifted to 18%-19%, suggesting a YoY rise of 1.6-2.6 percentage points, versus prior expectations of a 0.6-1 percentage point drop.
Following better-than-expected sales trends from October to mid-November and improved margin guidance, BofA Securities raised its net profit forecasts for CHOW TAI FOOK's 2026 and 2027 fiscal years by 6% and 1%, respectively, to RMB 8.7 billion and RMB 8.8 billion.
The report noted that while management's same-store sales growth guidance appears slightly conservative, there is room for upside. BofA Securities believes the worst phase of declining same-store sales growth is over, and the company's business transformation initiatives could support an earnings recovery.
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