Core views
FY24 (corresponding to April 23 to March 24), the company's revenue and net profit were +14.8% and +20.7% respectively, of which FY24 revenue in mainland China was +9.9%, and +1.8% and +7.4% year-on-year sales, thanks to rising revenue growth in newly opened franchise stores; revenue in Hong Kong, Macau and other regions +45.6%, benefiting from the recovery of mainland travelers and strong holiday demand. By product, sales of gold products continued to be strong, and the inlay was under pressure. The pace of FY24 store expansion has slowed. Chow Tai Fook's jewellery retail outlets totaled 7,548, a net increase of 153, a decrease of 1000+ compared to the previous fiscal year. Due to sharp fluctuations in gold prices, the company's same-store performance was weak in April-May '24, and revenue was -20.2% year-on-year. Looking ahead to FY25, 1) Management remains cautiously optimistic about FY25; 2) FY25 will carry out store optimization and internal adjustments to improve store operating efficiency and profitability; 3) It is expected that along with rising gold prices and optimized pricing, the company's gross margin and operating profit margin are expected to improve slightly.
occurrences
The company announced results for the 2024 fiscal year: FY2024 (corresponding to 2023.4.1-2024.3.31), the company's revenue was HK$108.713 billion/+14.8%; net profit attributable to mother was HK$6.499 billion/+20.71%. The 2024 fiscal year plan is to pay a dividend of HK$0.55 per share for the full year, with a dividend payout ratio of 84.6% for the full year.
Brief review
FY24's revenue and net profit grew steadily, gold sales were strong, and the Hong Kong and Macau regions performed well.
FY24's revenue was HK$108.7 billion/+14.8% (up 19% after exchanging exchange rate factors), and net profit to mother increased HK$6.50 billion/+20.7%. Among them, the fair value loss of gold loan contracts was HK$3.76 billion due to the sharp rise in gold prices in March '24. Among them:
1) By region, Hong Kong and Macau performed better than the Mainland under the recovery of outbound travel. ① Mainland China:
FY24's revenue in mainland China was HK$89.698 billion/+9.9%, up 14.1% at the same exchange rate. Among them, retail sales and franchise sales in mainland China were HK$385.70 and HK$51,128 billion, respectively, +3.6% and +15.1% year-on-year; FY24 sales of direct sales and franchise stores in mainland China were +1.8% and +7.4% year-on-year respectively, mainly due to the rise in revenue from newly opened franchise stores. ② Hong Kong, Macau and others: FY24's revenue was HK$19.015 billion/+45.6%. The sharp increase was mainly due to mainland visitors to Hong Kong and strong holiday demand.
2) By product, sales of gold products continue to be strong, and the inlay is under pressure. FY24 gold products generated revenue of HK$88.361 billion/+22.5%, accounting for 82.0% /+5.1pct of revenue, while revenue from major mosaic products was HK$14.439 billion, -13.3% year-on-year. Same-store sales of gold products increased by 6.4%, same-store sales decreased by 0.6%, with an average price of HK$5,600; same-store sales of inlay products decreased by 14.4%, same-store sales decreased by 20.5%, with an average price of HK$8,100.
FY24 store expansion is slowing down, and the focus is on optimizing store operations. By the end of March '24, Chow Tai Fook's jewellery retail outlets totaled 7548, a net increase of 153, down from a net increase of 1000+ in the previous fiscal year. Among them, 7403 households in mainland China had a net increase of 143, corresponding to a net increase of 21 and 122 new self-operated and franchised stores; 87 homes in Hong Kong and Macau, a net increase of 2; and 58 homes in other markets. The company gradually optimizes the existing retail network to improve operational efficiency and profitability.
FY24's profitability has increased steadily, and expenses are well controlled. FY24's adjusted gross profit margin (excluding the impact of gold loans) was 22.8% /-0.9pct, mainly due to the increase in the share of gold products and wholesale business, but the rise in gold prices and the increase in the share of priced gold products with higher gross margins offset some of the decline.
FY24 has a sales expense ratio of 8.7% /-1.8pct and a management expense ratio of 3.5% /-0.5pct. The cost control results are good. FY24's net profit margin was 6.1% /+0.3pct.
FY24's net cash flow from operating activities was HK$13.84 billion/+37.5%.
Due to sharp fluctuations in gold prices, the company's same-store performance was weak and revenue declined in April-May '24. From April 1 to May 31, 2024, the company's revenue was -20.2%, with Mainland China, Hong Kong, Macao and other regions being -18.8% and -29.0%, respectively. The sales volume of the same store in mainland China, Hong Kong, Macau and other regions was -27.6%, -32.0%, and the sales volume was -39.7% and -37.3% respectively. According to product classification, gold and mosaic products in mainland China were -29.8% and -32.9% respectively, while gold and mosaic products in Hong Kong and Macao were -34.6% and -31.1% in the same store respectively. Mainly affected by the fluctuation in high gold prices, consumers have a sense of risk aversion. In the future, it is expected that the same store's performance will gradually recover as gold prices stabilize.
Looking ahead to FY25, the company will upgrade its brand and initiate adjustments and transformation, focusing on high-quality store development. 1) Management remains cautiously optimistic about FY25; 2) On the store opening side, compared to high-speed exhibition stores in the previous 2-3 years, FY25 will carry out store optimization and internal adjustments to improve store operating efficiency and profitability; 3) It is expected that along with the rise in gold prices and optimized pricing, the company's gross margin and operating profit margin are expected to improve slightly. In April '24, the company launched a new brand logo, brand website, and the iconic Chow Tai ?$#@$ Chuanfu series for consumers to promote brand upgrading. It is expected that the same store will gradually recover as gold prices stabilize.
Profit forecast: We expect the company's FY25-27 revenue to be HK$1105.9, 1163.1 and HK$123.04 billion, respectively, up 1.7%, 5.2% and 5.8%; net profit to mother will be HK$6.87, 73.3 and 7.90 billion, respectively, up 5.7%, 6.7% year-on-year; corresponding P/E will be 12.7x, 11.9x, 11.0x, maintaining the “increase” rating.
Risk warning: 1) Consumer demand falls short of expectations Risk: The company's products are mainly gold and mosaic products, and the overall customer unit price is high. If residents' income levels are low or the macroeconomy is sluggish, demand may be sluggish. At the same time, fluctuations in gold prices affect residents' gold jewelry consumption behavior, and short-term gold prices soared or curtailed gold jewelry consumption. 2) Product quality control risk: The company continuously improves the product quality control system. If the company is unable to effectively implement product quality control measures in the future, product quality problems or disputes will adversely affect the company's brand and operation. 3) Franchise management risk: If the franchisee's business activities are contrary to the company's brand management purpose, the company is unable to control the franchisee in a timely manner, which will adversely affect the company's brand image and future development.