Zhongtong Finance APP has learned that GTJA has released a research report stating that it maintains a "shareholding" rating for Chow Tai Fook (01929), and the Company's net income attributable to owners of the parent for fiscal years 2025-2027 is expected to be HKD 6.95 billion, HKD 7.963 billion, and HKD 8.994 billion, respectively, corresponding to EPS of HKD 0.7, HKD 0.8, and HKD 0.9, respectively, with a target price of HKD 10.5. The Company's FY2024 revenue performance was in line with expectations, while its profit performance was weaker than expected, mainly due to unrealized losses from gold borrowing and lending. Considering the rise in gold prices and the re-pricing of certain gold products in terms of weight, the profit margin for FY2025 is expected to be promising.

Performance summary: the Company achieved revenue of HKD 108.713 billion in FY2024, a year-on-year increase of 14.8% (18.5% at constant exchange rates); its main operating profit was HKD 12.163 billion, a year-on-year increase of 28.9%; and its net income attributable to owners of the parent was HKD 6.499 billion, a year-on-year increase of 20.7%.

The main points of the report are as follows:

Revenue performance was in line with expectations, and the re-pricing of certain gold products in terms of weight is expected to improve the profit margin.

The revenue growth rate for FY2024 was in line with expectations, while the profit performance was weaker than expected, mainly due to unrealized losses of HKD 2.489 billion from gold borrowing and lending caused by the temporary surge in gold prices. Excluding the impact of the unrealized gains and losses from gold borrowing and lending, the core operating profit was in line with expectations. The Company's adjusted gross margin was 22.8% (-0.9 percentage points), while its main operating profit margin was 11.2% (+1.2 percentage points), mainly due to the optimization of pricing strategies and the rise in gold prices, which offset the impact of changes in the product mix.

Looking at the factors affecting the breakdown of the gross margin, the rise in gold prices and the optimization of pricing strategies boosted the gross margin by 1.4 percentage points, while changes in the product mix driven by the increase in the proportion of gold weighed down the gross margin by 1.5 percentage points. Considering that the product strategy will gradually adjust some gold products with a higher proportion of weight to pricing products with higher profit margins, it is expected that the contribution of pricing gold sales to total sales will increase from 7% in FY2024 to 14% in FY2025, and the launch of new product series such as gold-set diamonds will drive the optimization of the product mix, which is expected to have a positive impact on the trend of profit margins.

The fluctuation of gold prices has caused temporary disturbances to the demand for gold, and the channel network is focused on high-quality growth.

In FY2024, the Company's revenue in mainland China reached HKD 89.698 billion, a year-on-year increase of 9.9%, while its revenue in Hong Kong, Macau, and other markets reached HKD 19.015 billion, a year-on-year increase of 45.6%. The Company's selling and administrative expenses ratio improved by 2.2 percentage points on a year-on-year basis. With the recovery of offline operations and the improvement of operational efficiency, the main operating profit margin for Hong Kong, Macau, and other markets increased significantly by 3.7 percentage points to 8.7% YoY, while that for mainland China increased by 1.0 percentage points to 11.7% YoY.

The short-term high volatility of gold prices has increased consumers' wait-and-see attitude. From April to May 2023, same-store sales in mainland China and Hong Kong and Macau markets fell by 27.6% and 32.0%, respectively. The fluctuation of gold demand has brought temporary pressure on same-store performance, and we are waiting for the recovery of demand to release. With regard to the channel network, Chow Tai Fook Jewellery stores in FY2024 increased by a net of 153 stores. As of March 31, 2024, the Group had a total of 7,548 jewellery retail points. In FY2025, we will continue to focus on high-quality growth and improve the operating efficiency and consumer experience of existing stores.

Risk factors: fluctuations in gold prices affecting sales, weakness in high-end consumption, and failure to recover same-store growth as expected, among others.