UBS Adjusts Chow Tai Fook's Price Target Lower, Maintains Buy Rating

UBS has released a research report adjusting its valuation for CHOW TAI FOOK (HKEX: 01929). The firm has lowered its target price for the stock from HK$18.5 to HK$16.0. This revised target corresponds to a forecasted price-to-earnings ratio of 15 times for the fiscal year 2027 and implies a dividend yield of 7%.

The decision to reduce the target price stems from an increase in the weighted average cost of capital (WACC) used in the discounted cash flow (DCF) model, raised from 9.3% to 10% to account for a higher beta. Despite this adjustment, UBS has reaffirmed its "Buy" rating on the company.

UBS noted that CHOW TAI FOOK's performance for the 2026 fiscal year aligned with its expectations. The company reported revenue and net profit of 94.4 billion yuan and 9.0 billion yuan, representing year-on-year growth of 5% and 52%, respectively. These figures were consistent with a previously issued positive profit alert that indicated growth of 45% to 55%.

However, the dividend payout ratio for the period was 73%, which fell short of market expectations, though it remained within the management's stated target range of 70% to 80%.

On the operational front, the report highlighted a significant improvement in retail sales for April and May, which grew by 14.7% year-on-year. This was driven by strong same-store sales growth across different segments: 19.7% for directly operated stores in Mainland China, 15.2% for franchise stores in Mainland China, and 40.6% for stores in Hong Kong and Macau, marking a notable improvement from the March quarter.

Looking ahead, management has provided guidance for the 2027 fiscal year, anticipating overall revenue growth in the mid-to-high single digits. Same-store sales are expected to grow by high single digits in Mainland China and low double digits in Hong Kong and Macau.

In light of the recent robust same-store sales performance and the official guidance exceeding expectations, UBS has raised its earnings per share forecasts for CHOW TAI FOOK for the fiscal years 2027 through 2029 by 1% to 5%.