FY24 (April 2023 to March 2024) results are in line with our expectations that the company's FY24 revenue will increase 28% year over year to HK$15.3 billion, and net profit to mother will increase 38% year over year to HK$1.8 billion. The performance is in line with our expectations. The company declared a final dividend of HK$0.64 per share, corresponding to a dividend payout rate of 47% for the whole year.
The retail business in Hong Kong, Macau and the Mainland maintained relatively rapid growth. Retail revenue of 2HFY24 also increased 37% to HK$6.7 billion. Among them, China's Hong Kong, Macao and overseas regions benefited from improved passenger flow after customs clearance between Hong Kong and Macau, with revenue rising 42% to HK$5.1 billion, a net increase of 8 stores during the period; revenue in mainland China also increased 24% to HK$1.6 billion, a net increase of 67 stores during the period. Revenue from the wholesale business 2HFY24 fell 37% to HK$600 million, with revenue in Hong Kong, Macao and overseas regions falling 5%, and nine stores remained flat month-on-month during the period. Mainland China was dragged down by low demand for diamond products, with revenue falling 38%, with a net increase of 219 stores during the period. The revenue of the brand business 2HFY24 fell 4% year over year to HK$500 million.
The product structure affects gross profit margins, and the acquisition of Hong Kong resources brings one-time revenue to increase profits. By category, benefiting from rising gold prices, 2HFY24 gold and platinum product revenue also increased 47% to HK$5.5 billion, which was the main driving force for the company's revenue growth; pricing jewellery revenue also fell 14% to HK$1.8 billion. In terms of gross margin, due to an increase in the share of gold products with low gross margin, the company's 2HFY24 gross margin decreased by 1.0ppt to 26.7%; by category, the gross margin of gold and platinum products increased by 0.3 ppt; and the gross margin of pricing jewelry products also increased by 6.4 ppt (due to a structural increase in the share of retail business with high gross margin). The sales and management expenses ratio decreased by 0.1 ppt to 15.9%. The acquisition of Hong Kong Resources during the period brought one-time valuation revenue of HK$190 million, and the operating margin also increased by 0.6 ppt to 12.4%.
Inventory turnover accelerated. By the end of FY24, the company's inventory had also increased 8% to HK$9.6 billion. The number of inventory turnover days was 68 to 310 days, mainly due to the recovery of retail business in Hong Kong and Macau and the good sales performance of gold products.
Development trends
Affected by high fluctuations in gold prices, the company's same-store sales in the Hong Kong and Macau markets fell 35% from April to June 21, and same-store sales in the mainland China market also fell 20%. The management plans to invest more resources to expand overseas markets, and plans to open approximately 15 stores in FY25 overseas markets.
Profit forecasting and valuation
Considering the impact of high fluctuations in gold prices on terminal sales, the FY25/26 EPS forecast was lowered by 12%/9% to HK$3.05/3.47. The current stock price corresponds to 5.4/4.8 times the FY25/26 price-earnings ratio, maintaining an outperforming industry rating. Due to the decline in the valuation center of the industry, the target price was lowered by 18% to HK$19.55, corresponding to 6.4/5.6 times the FY25/26 price-earnings ratio. There is 18% room for growth compared to the current stock price.
risks
Gold prices fluctuated greatly, industry competition intensified, and the terminal retail environment fell short of expectations.