20181130-中国银河国际证券-周大福-01929.HK-Clouded_by_RMB_Depreciation_and_Uncertain_Outlook-HOLD_6页_1mb

Chow Tai Fook Jewellery [1929.HK] Summary

Core Content

Chow Tai Fook Jewellery (1929.HK) reported 1H FY2019 results showing revenue growth of 20.0% YoY to HK$29,703m and core operating profit growth of 24.7% YoY to HK$2,989m, but the net profit growth was only 8.8% YoY to HK$1,936m, primarily due to a larger-than-expected net FX loss of HK$326m caused by RMB depreciation. This performance fell short of market expectations, leading to a downgrade to HOLD from BUY.

Main Points

• Revenue Growth: 20.0% YoY in 1H FY2019, with retail sales value growing >20% in Hong Kong and 10% in mainland China.
• Profit Performance: Net profit growth of 8.8% YoY, significantly lower than the core operating profit growth of 24.7% YoY.
• FX Impact: A HK$326m net FX loss in 1H FY2019 compared to a HK$111m FX gain in 1H FY2018, highlighting the adverse impact of RMB depreciation.
• SSSG Weakness: Early Q3 FY2019 SSSG showed weakness, particularly in mainland China, where high-end luxury products underperformed.
• Earnings Forecast Adjustment: EPS forecast for FY2019 and FY2020 was lowered by ~15% to HK$0.41 and HK$0.47, respectively.
• Target Price: Revised to HK$6.10, with a target FY2019E PER reduced from 17x to 15x.
• Dividend Outlook: Dividends are expected to be less generous, as the company has financed past dividends with debt.

Key Financials

Key Assumptions

SSSG Performance

Investment Risks and Upside

• Downside Risks: Continued RMB depreciation, weak consumer sentiment, and unexciting sales growth.
• Upside Risks: Improved market sentiment, better cost control, and favorable RMB exchange rate movement.

Analyst Information

• Analyst: Tony Li, CFA
• Contact: (852)36986392 | tonyli@chinastock.com.hk
• Head of Research: Wong Chi Man, CFA
• Contact: (852)36986317 | cmwong@chinastock.com.hk

Disclaimer

• The report is not directed at individuals in jurisdictions where it may be illegal.
• No representation or warranty is made regarding the accuracy or completeness of the information.
• This report is not an offer to buy or sell securities.
• Past performance does not guarantee future results.

Copyright

• No part of this material may be reproduced or redistributed without prior written consent from China Galaxy International Securities (Hong Kong) Co., Limited.