FY24's net revenue and profit all grew steadily. Following the progress of brand optimization and efficiency improvement in the second half of the year, the company recently released the FY2024 financial report. Revenue also increased 14.8% to HK$108.7 billion (19% increase after exchanging exchange rate factors), net profit from main operations also increased 28.9% to HK$12.16 billion, and net profit attributable to mother rose 20.7% to HK$6.50 billion, lower than Bloomberg's agreed expectation of HK$7.7 billion. The low expectations were mainly due to the sharp rise in gold prices in March, when a fair value loss of HK$3.76 billion was recorded. At the same time, the share of FY24H2 mosaic product turnover fell 2.3 pct to 12.4% month-on-month, which also dragged down the gross profit margin to a certain extent. Looking ahead to 24H2, although the price of gold is disrupted, we are still optimistic about the company's brand optimization measures, product and channel advantages. Combined with the Q3 peak season, it is expected to stimulate demand. We believe that the company's same stores are expected to gradually recover. The company's net profit from FY25-27 is expected to reach HK$59.9, 64.0, and HK$6.76 billion. Referring to comparable company Bloomberg's consensus estimate of 12.59 xPE in 2024, considering that Chow Tai ?$#@$ is expected to take the lead in benefiting from a recovery in sales after the price stabilizes, and the company's FY24 dividend payout ratio is about 85%, giving the company FY25 18xPE with a target price of HK$10.80 (previously HK$14.11), maintaining the increase in holdings.
The weak performance of the same store in April and May was mainly due to a sharp fluctuation in gold prices, which did not change the relative boom in jewelry consumption FY2024. Chow Tai ?$#@$ directly operated/joined SSSG in the Mainland +1.8%/+7.4%, compounding the net increase of 143 Chow Tai ?$#@$ brand jewelry stores. The company's revenue increased 14.8% year-on-year to HK$108.7 billion. From April to May '24, the company's retail sales fell 20.2% year on year, with retail sales in the Mainland, Hong Kong, Macau and other markets falling 18.8% and 29.0% year on year. The main reason is that we believe that high fluctuations in gold prices cause risk aversion among consumers. At the same time, brands/franchisees also need to absorb higher gold prices and optimize their products and marketing plans. With gold prices stabilizing, we think Chow Tai Fook's store is expected to recover in the second half of 2024.
The adjustment and transformation began in April. The slowdown in exhibition stores and continued efficiency improvements and cost reductions are expected to bring COPM to increase 2024 Q1. The company closed 88 or 6 of Chow Tai Fu/its other brands, respectively. The main company optimized inefficient stores. Under relatively positive adjustments, Chow Tai Fook's core operating profit margin increased rapidly. FY24 increased 1.2 pct to 11.2% year on year (the rapid rise in gold prices at the end of March caused gold loans to record high losses, but it is expected to be recovered from future gross profit along with inventory sales). In addition to the positive impact of product upgrades on gross margin, FY24 has reduced sales and administrative expenses by 2.3 pct to 12.2% year-on-year through various measures to improve efficiency and reduce costs, such as personnel optimization and packaging optimization. Among them, the ratio of employee costs and packaging materials to sales increased by 0.7 pct and 0.5 pct, respectively.
I am optimistic that business will gradually stabilize in the second half of the year. Along with the recovery in gold prices and sales, the leading companies in the industry have begun a new round of brand upgrade plans in 2024. Short-term same-store sales may fluctuate against the backdrop of increased competition. With the maturing of new products and the gradual implementation of brand upgrade plans, the price of superimposed gold gradually stabilizes. As the Q3 peak season approaches, Chow Tai Fook's same store is expected to return to growth. Considering that the same store was weak in April and May, we expect FY25's net profit to fall year-on-year, and is expected to return to the growth trend in FY26-27 after stabilizing operations.
Risk warning: Gold prices fluctuate, consumer confidence slowly recovers, and brand upgrades fall short of expectations.