The company's recent situation
The company announced the 4QFY24 (January-March) business situation: Lukfook Group's retail sales increased 5% year on year, with retail sales in mainland China, Hong Kong and Macau increasing 9% and 10% year on year respectively; sales at its own stores, brand stores, and the same store in Hong Kong and Macau fell 10%, 3%, and 4%, respectively.
reviews
A high base affects 4QFY24 same-store sales. Although there are traditional jewelry consumption seasons such as the Spring Festival during the season, the company's 4QFY24 retail sales increased 5% year-on-year due to the high base brought about by the improvement in the retail environment during the same period last year. Retail sales in the mainland China market increased 9% year on year (about 4% year on year after the completion of the controlling acquisition). Among them, the same stores fell 10% year on year during the season, and the net increase of 65 self-operated stores in the mainland reached 150; brand stores fell 3% year on year, with a net opening of 159 brand stores during the quarter. In addition, online channels in the mainland maintained a good growth momentum, and 4QFY24 e-commerce business sales increased 15% year over year. Under the high base brought about by customs clearance last year, retail sales in the Hong Kong and Macau regions increased 10% year on year (up 8% year on year after excluding Hong Kong resources), and same-store sales in Hong Kong and Macau fell 4% year on year. Same-store sales in Hong Kong, China fell 2% year on year; same stores in Macau, China fell 8% year on year, up nearly 20% over the same period in FY19. A net of 6 self-operated stores were opened in Hong Kong, Macau and other regions of China during the season.
Gold products drive sales growth. The same gold product stores of the 4QFY24 Group rose 4% year on year, with private stores, brand stores, and Hong Kong and Macau regions respectively -3%, +4%, and +5% year-on-year; the Group's overall jewellery prices fell 24% year on year. Among them, self-operated stores, brand stores and Hong Kong and Macao regions in mainland China fell 39%, 24%, and 24% year-on-year respectively. Gold prices outperformed diamonds in company-priced jewelry. Diamond products in mainland China, Hong Kong and Macau fell 60% and 38% year-on-year, respectively, while the same store priced gold products declined by -26% and +4%, respectively.
FY24 continues to maintain its optimistic guidance. Considering that demand for diamonds in mainland China is still weak, the company will continue to actively promote other price-priced jewellery products such as gold. Although short-term high gold prices have had a certain impact on sales of gold products, management expects a positive impact on the company's gross margin, and sales are expected to resume further after gold prices are normalized. We believe that as the Hong Kong stock jewelry company with the highest share of revenue in Hong Kong and Macau before the pandemic, the continued recovery of tourism and passenger traffic in Hong Kong and Macau after customs clearance brought operating leverage, and management guided FY24 Group's performance to surpass pre-pandemic performance.
Profit forecasting and valuation
The company's FY24/25 EPS forecast of HK$3.04/3.45 was kept unchanged, and an FY26 EPS forecast of HK$3.80 was introduced. The current stock price corresponds to 5/5 times the FY25/26 price-earnings ratio, maintaining an outperforming industry rating. The valuation switched to FY25, considering that the company's pricing and jewellery sales pressure was high. The target price was lowered by 13% to HK$23.82, which corresponds to 7/6 times the FY25/26 price-earnings ratio, with 33% upside.
risks
Gold prices fluctuated greatly, industry competition intensified, and the terminal retail environment fell short of expectations.