Chow Tai Fook (CTF) reported 1HFY25 (6 months ended Sep 2024) results with revenue down 20.4% YoY, in line with Bloomberg consensus estimates. NP dropped 44.4% YoY, 20% below consensus mainly due to weak consumer sentiment and fair value loss of gold loan due to gold price hikes. CTF announced a share buyback plan of HK$ 2bn on top of HK$ 0.2 per share dividend. Considering possible continued weakening of consumer sentiment and gold price fluctuation, we cut NP forecasts by 20-30%, projecting NP growth of -23.3%/28.1%/6.8% in FY25/26/27E. Accordingly, we cut our TP by 31% to HK$10.0, representing 20x FY25E P/E.
1HFY25 revenue in line, NP missed. The company reported 1HFY25 (6 months ended Sep 2024) results. Revenue dropped 20.4% YoY to HK$ 39.4bn, in line with consensus, due to weak consumer sentiment and intensified wait-and-see stance due to gold price hikes. Net profit plunged 44.4% YoY to HK$ 2.5bn, 20% below consensus. This was stemmed from combined impacts of GP margin boost and gold loan value loss: 1) GP margin rose 6 ppts to 31.6%, aided by higher gold prices and fixed-price product contribution to sales doubling to 14.2%. 2) Gold loan fair value loss was at HK$ 3.1bn (approx. 20%+ price rise for nearly 30,000kg gold loans, CMBI est.).
Cut full-year estimates. The company provided comprehensive guidance projecting a mid-teen revenue slump for FY25E, with OP margin up 1.5-3 ppts as GP margin improvement will be partly offset by SG&A ratio hike (operating deleverage). We cut revenue forecasts by 15 - 20%, expecting it to change by -16.2%/ -2.4%/ +3.2% YoY in FY25/26/27E respectively. Given the uncertainty in the international environment currently which may lead to continued fluctuations in gold prices, we expect fair value loss of gold loan to persist in 2H. Thus, we cut our net profit projections by 20-30%, estimating the bottom line to change by -23.2%/ +28.1%/ +6.8% YoY, amounting to HK$ 5.0/4.4/6.8 bn in FY25/26/27E respectively.
The company remains committed to shareholder returns, declaring a dividend of HK$ 0.2 per share in 1HFY25 (vs. HK$0.25 per share in 1HFY24), given the significant decline in NP. The payout ratio increased from 55% in 1HFY24 to 79% in 1HFY25. Additionally, CTF announced a share buyback plan of up to HK$ 2bn, and funding will come from 1) higher 2HFY25 operating cash flow, and 2) cash released from inventory reductions.
Maintain BUY with TP cut by 31% to HK$ 10.0 given lower NP forecasts. Our new TP represents 20x FY25E P/E, in line with the long-term average of comparable peers. Key risks: weak consumption, gold price volatility, and worse-than-expected new product sales.
