Key points of investment
Performance: FY24's double-digit increase in revenue and profit is in line with expectations. Steady store expansion and store efficiency optimization drive growth FY24 revenue +14.8% and profit +20.7% in line with expectations. The Group's overall revenue for FY24 increased 14.8% year over year to HK$108.7 billion, with mainland revenue up 9.9% year over year, and Hong Kong, Macau and other markets increasing 45.6% year over year. Profit attributable to the Group's shareholders increased 20.7% year over year to HK$6.5 billion. Unrealized losses on gold loans due to fluctuations in gold prices in the second half of FY24 offset the increase in some major operating profit. Unrealized losses on gold loans reached HK$2.49 billion in FY24.
FY24 same-store growth has resumed. Mainland same-store sales (direct management) were +1.8% year-on-year, benefiting from the improved efficiency of newly opened stores, and +7.4% for mainland franchises. Inbound tourism between Hong Kong and Macau continued to improve, with the same store in Hong Kong and Macau +42.4%.
Store expansion is slowing down, and the strategy is shifting to improving store efficiency. Chow Tai ?$#@$ Jewellery has 7,403 retail outlets in mainland China, a net increase of 143. There were 145 companies in Hong Kong, Macau and other markets, a net increase of 10.
Revenue structure: The mainland business is in a stage of continuous optimization and adjustment. Sujin's high boom in volume and price squeezed the mainland stores in FY24, and the growth rate in Hong Kong and Macau was even faster. The price of gold rose steadily, measured by the boom in gold prices, and demand for inlaid jewellery was curtailed.
FY24 Revenue Structure = 82.5% Mainland +17.5% Hong Kong, Macau and others. FY24 Mainland China/Hong Kong and Macau and others were +9.9%/+45.6% year-on-year, accounting for 82.5%/17.5%.
FY24 Revenue Structure = 13.3% Jewelry Inlays +81.2% Gold Jewellery +4.6% Timepieces. FY24 jewelry/gold jewelry/watches -13.3%/+22.5%/+0.5%, accounting for 13.3%/81.2%/4.6%.
Profitability: Changes in product structure and wholesale direct sales structure led to a decline in gross margin. Significant cost control results were FY24 gross margin of 20.5%, down 1.9 pct year on year, mainly due to changes in product and wholesale structure. The adjusted gross margin was 22.8%, down 0.9 pct year on year.
Under the company's strict cost control, FY24 sales and administrative expenses accounted for 12.2%, a year-on-year decrease of 2.3 pcts. The main operating margin increased to 11.2%, an increase of 1.2 pct over the previous year.
Retail sales in April-April were greatly affected by the sharp rise in gold prices. We continue to pay attention to same-store sales changes. The Group's overall retail value was -20.2% YoY in April-April 2024, with retail value in the Mainland -18.8% YoY, and retail value in Hong Kong, Macao and others -29.0% YoY. In terms of same-store growth, same-store sales in mainland China were -27.6% year-on-year, and same-store sales were -39.7% year-on-year; in the Hong Kong and Macau markets, same-store sales were -32.0%, and same-store sales were -37.3% year-on-year. The sharp rise in gold prices since March has greatly inhibited the consumption of gold and jewelry.
Profit forecasting and valuation
FY25 expects that the company will continue to optimize stores and slow down the pace of opening stores. FY2025-2027 is expected to generate revenue of HK$1,132/1224/135 billion, up 4%/8%/7% year on year; net profit to mother is estimated to be HK$70/79/8.8 billion, up 7%/14%/11% year over year, corresponding to PE 13/11/10X, maintaining the “gain” rating.
Risk warning: gold price fluctuates; competition intensifies; consumption recovery falls short of expectations