20181019-中国银河国际证券-六福集团-00590.HK-Q2_FY2019_Figures_Not_Bad._Remain_Cautiously_Optimistic_3页_662kb

Luk Fook Holdings [590.HK] Summary

Core Content Overview

Luk Fook Holdings released its Q2 FY2019 operating figures, showing improvement in both Hong Kong & Macau and Mainland China regions. The company remains cautiously optimistic about its performance, despite market uncertainties and a correction in the Hang Seng Index.

Key Financial Performance

• Q2 FY2019 SSSG (Same Store Sales Growth):
  • Hong Kong & Macau: +17%, driven by strong gold sales.
  • Mainland China: +4%, a slight improvement from the previous quarter’s -2%.
• Gold Sales:
  • Q2 FY19: +30% SSSG.
  • Gem-set products: +4% SSSG, significantly lower than Q1 FY19’s +19%.
  • The slowdown in gem-set sales was attributed to the depreciation of the RMB, leading to lower average selling prices (ASP) for Mainland visitors.
• Earnings Forecast:
  • The company maintains a mid-single-digit EPS growth forecast for FY2019.
  • The target price (TP) is revised down to HK$29.9 from HK$37.3, reflecting a lower PER multiple from 15x to 12x due to reduced market risk appetite.
• Current Valuation:
  • The current PER (Price to Earnings Ratio) is 9.8x, which is considered reasonable compared to the historical average of 12x.

Investment Highlights

• Hong Kong & Macau:
  • Strong performance in gold sales, contributing to overall positive momentum.
  • The company is well-positioned to benefit from increased visitor numbers to Hong Kong.
• Mainland China:
  • Gem-set sales have become a key growth driver.
  • Management plans to open 120 stores in FY2019, primarily through licensees.
• October Golden Week:
  • Mixed results: double-digit growth in Hong Kong, but double-digit decline in Mainland China.
  • The drop in Mainland China was attributed to a high number of outbound travelers and a strong base effect from previous periods.
• Market Guidance:
  • Management reiterated its full-year guidance for SSSG in both regions.
  • The company expects to achieve positive double-digit growth in Hong Kong and single-digit growth in Mainland China.

Financial Statements Summary

Key Ratios

Investment Outlook

• Equity Rating: BUY
• Target Price: HK$29.9 (up +22.5% from closing price of HK$24.40 on Oct 18, 2018)
• Valuation Adjustments:
  • Lowered FY2019E PER from 15x to 12x due to market risk aversion.
  • Current valuation of 9.8x FY2019E PER is seen as reasonable.

Disclaimer and Conflicts of Interest

• This report is issued by China Galaxy International Securities (Hong Kong) Co., Limited.
• The company may have financial interests in the subject company, with interests potentially equal to or exceeding 1% of the market capitalization.
• The report may include personal views of the analyst, which may differ from the views of China Galaxy International.
• The analyst confirms no direct or indirect compensation related to the report’s views.
• The report is not an offer or solicitation to buy or sell securities.

Conclusion

Luk Fook Holdings reported positive Q2 FY2019 results, with strong gold sales in Hong Kong and improving gem-set sales in Mainland China. Despite the market correction, the company maintains a BUY rating and a revised target price of HK$29.9, reflecting a more conservative valuation. The company’s growth drivers include its strong retail presence in Hong Kong and effective wholesaling in Mainland China, with continued expansion through franchising.