20180104-中国银河国际证券-六福集团-00590.HK-Outperformer_in_The_Current_Cycle._Initiate_with_BUY.__10页_1mb
报告摘要
Summary of Luk Fook Holdings [590.HK]
Core Content
Luk Fook Holdings is a Hong Kong-based jewelry company that is being initiated with a BUY rating due to its potential to outperform in the current recovery cycle of the China luxury market. The company is expected to benefit from the increasing contribution of self-operated stores and e-commerce channels, which are more profitable than its franchisee model. The report highlights that the company has a strong financial position with a net cash of HK$1.37bn as of September 30, 2017, and that it may have room to increase its dividend payout ratio, which could serve as a share price catalyst.
Main Points
- Outperformer Potential: Luk Fook is expected to outperform its peers due to its sensitivity to the industry cycle and its strategic shift towards more profitable self-operated stores and e-commerce.
- Growth in Self-operated Stores: Currently, only ~10% of Luk Fook's POS (Point of Sale) are self-operated. The company has raised its guidance for FY2018 to add 100 POS in Mainland China, with ~20 being self-operated. These new stores are expected to be located in larger cities to generate higher per-store revenue.
- E-commerce Contribution: E-commerce now accounts for ~15% of Mainland China's retail revenue and is expected to be a key growth driver for Luk Fook.
- GPM Improvement: Gross profit margin (GPM) is projected to increase from 23.2% in FY2015 to 26.5% in FY2020E, driven by stronger gem set sales. Gem sets have a higher GPM than gold products, and Luk Fook's GPM is still below that of its peers, such as Chow Tai Fook (close to 29–30%).
- EPS Growth: The company is expected to report +11.8%, +16.0%, and +18.3% in EPS for FY2018E, FY2019E, and FY2020E respectively.
- Valuation: Luk Fook's current valuation is at a multi-year high, but it is still considered undervalued compared to its peers. The target price of HK$39.30 is based on a 17.5x FY2019E PER, which is close to its historical high and is believed to be justified by the projected earnings growth.
- Dividend Strategy: The company's ordinary dividend payout ratio is expected to normalize to ~40% in the future, which could enhance shareholder returns and potentially drive up the share price.
Key Financials
| Metric | FY2015 | FY2016 | FY2017 | FY2018E | FY2019E | FY2020E |
|---|---|---|---|---|---|---|
| Revenue (HK$m) | 15,923 | 14,031 | 12,807 | 14,365 | 15,978 | 17,378 |
| Net Profit (HK$m) | 1,615 | 959 | 1,017 | 1,137 | 1,319 | 1,561 |
| Net Margin | 10.1% | 6.8% | 7.9% | 7.9% | 8.3% | 9.0% |
| Basic EPS (HK$) | 2.74 | 1.63 | 1.73 | 1.94 | 2.25 | 2.66 |
| PER (x) | 12.4 | 20.8 | 19.6 | 17.5 | 15.1 | 12.8 |
| PBR (x) | 2.3 | 2.3 | 2.2 | 2.1 | 2.0 | 1.8 |
| Net Cash (HK$m) | 2,090 | 2,430 | 1,862 | 1,641 | 1,616 | 1,946 |
Investment Highlights
- Self-operated Stores & E-commerce: Expected to significantly contribute to revenue and profit growth, with self-operated stores being more profitable.
- GPM Expansion: Projected to rise from 23.2% to 26.5% by FY2020E, driven by stronger gem set sales.
- Dividend Payout: Current payout ratio is ~43.3% for FY2020E, with potential for normalization to ~40% in the future.
- Re-rating Potential: The company's valuation is expected to continue re-rating due to its strong earnings growth and relatively low valuation compared to peers.
Financial Position
- Luk Fook has a healthy financial position with a net cash of HK$1.37bn.
- Despite its aggressive expansion, the company has maintained a stable cash flow, which supports its growth strategy.
- The company has started paying special dividends since FY2016, which could be used to maintain its share price.
Valuation
- The target price of HK$39.30 is based on a 17.5x FY2019E PER.
- The current PER is 17.5x, which is close to the historical high of Luk Fook and is expected to be justified by its strong earnings growth.
- The company's PBR is currently 1.8x, indicating it is trading at a relatively low price compared to its book value.
Conclusion
Luk Fook Holdings is expected to benefit from the recovery of the China luxury market, with its self-operated stores and e-commerce channels providing a more visible and profitable contribution. The company's financial position is strong, with a net cash of HK$1.37bn, and its GPM is expected to improve due to stronger gem set sales. The company is currently trading at a multi-year high in terms of PER, but it is still considered undervalued compared to its peers. The report suggests that the company's EPS growth and potential for increased dividend payouts could support further re-rating and share price appreciation.
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