Company trends
The current situation of the company
1QFY24 (April-June 2023) the retail sales of Liufu Group in the mainland, Hong Kong and Macao increased by 21% and 92% respectively compared with the same period last year; mainland proprietary stores, brand stores and same-store sales in Hong Kong and Macao increased by 3%, 6% and 75% respectively.
Comment
The same store in the mainland grew steadily, and retail sales in Hong Kong and Macao have returned to FY19. The overall retail sales in the mainland market increased by 21% compared with the same period last year, of which the same store in the self-operated store increased by 3% year-on-year (double-digit growth in April-May and turned negative from a high base in June), net clearance of 2 Liufu self-owned stores, and brand stores increased by 6%. Net opening of 48 Liufu brand stores. In addition, the mainland's online channels performed strongly, with ecommerce sales up 40 per cent year-on-year. After benefiting from the customs clearance policy, the number of tourists in Hong Kong and Macao gradually recovered, and retail sales increased sharply by 92% compared with the same period last year, returning to close to the level of FY19 for the same period. The same store in Hong Kong and Macao increased by 75%, of which the same store in Hong Kong and Macao increased by 70% and 90% respectively compared with the same period last year. During the quarter, three and two Liufu stores were opened in Hong Kong and other regions respectively.
Gold same-store growth, but mainland diamond same-store decline dragged down pricing jewelry performance. The same-store gold products of 1QFY24 Group rose 67% compared with the same period last year, of which mainland self-owned stores, brand stores, Hong Kong and Macao increased by 6%, 14% and 81% respectively, while the overall same-store growth of group priced jewelry increased by 54%. Among them, mainland self-owned stores, brand stores, Hong Kong and Macao fell by 3%, 10% and 65% respectively. In pricing jewelry, priced gold outperformed diamonds, with mainland self-owned stores and brand stores falling by 30% and 35% respectively, while pricing gold increased by 26% and 5% respectively.
Management expects FY24's Hong Kong and Macao business to exceed the FY19 level. The Group will strengthen the promotion of non-diamond priced jewelry products such as priced gold to reduce the impact of weak diamond demand in the mainland market. In addition, with the gradual recovery of tourism in Hong Kong and Macao since customs clearance, and the strong recovery of local demand, the company expects the business performance of FY24 Hong Kong and Macao market to exceed the FY19 level.
Profit forecast and valuation
Keep the annual EPS forecasts of FY24 and FY25 unchanged at HK $2.74 and HK $3.16, and the company's current share price corresponds to a price-to-earnings ratio of 6 times FY24E/25E. Maintain the neutral rating and maintain the target price of HK $24.69, corresponding to 9 times FY24's annual price-to-earnings ratio, which is 22.5% upside from the current share price.
Risk
The price of gold fluctuates sharply, the competition in the industry intensifies, and the terminal retail environment is less than expected.