1H earnings missed, 2H still under pressure

周大福(01929)\r

Chow Tai Fook(CTF)reported1HFY25(6months ended Sep2024)resultswith revenue down20.4%YoY,in line with Bloomberg consensus estimates.NP dropped44.4%YoY,20%below consensus mainly due to weak consumersentiment and fair value loss of gold loan due to gold price hikes.CTFannounced a share buyback plan of HK$2bn on top of HK$0.2per sharedividend.Considering possible continued weakening of consumer sentimentand gold price fluctuation,we cut NP forecasts by20-30%,projecting NPgrowth of-23.3%/28.1%/6.8%in FY25/26/27E.Accordingly,we cut our TP by31%to HK$10.0,representing20x FY25E P/E.\r

1HFY25revenue in line,NP missed.The company reported1HFY25(6months ended Sep2024)results.Revenue dropped20.4%YoY to HK$39.4bn,in line with consensus,due to weak consumer sentiment andintensified wait-and-see stance due to gold price hikes.Net profit plunged44.4%YoY to HK$2.5bn,20%below consensus.This was stemmed fromcombined impacts of GP margin boost and gold loan value loss:1)GPmargin rose6ppts to31.6%,aided by higher gold prices and fixed-priceproduct contribution to sales doubling to14.2%.2)Gold loan fair value losswas at HK$3.1bn(approx.20%+price rise for nearly30,000kg gold loans,CMBI est.).\r

Cut full-year estimates.The company provided comprehensive guidanceprojecting a mid-teen revenue slump for FY25E,with OP margin up1.5-3ppts as GP margin improvement will be partly offset by SG&A ratio hike(operating deleverage).We cut revenue forecasts by15-20%,expecting itto change by-16.2%/-2.4%/+3.2%YoY in FY25/26/27E respectively.Given the uncertainty in the international environment currently which maylead to continued fluctuations in gold prices,we expect fair value loss ofgold loan to persist in2H.Thus,we cut our net profit projections by20-30%,estimating the bottom line to change by-23.2%/+28.1%/+6.8%YoY,amounting to HK$5.0/6.3/6.8bn in FY25/26/27E respectively.\r

The company remains committed to shareholder returns,declaringdividend of HK$0.2per share in1HFY25(vs.HK$0.25per share in1HFY24),given the significant decline in NP.The payout ratio increased from55%1HFY24to79%in1HFY25.Additionally,CTF announced a share buybackplan of up to HK$2bn,and funding will come from1)higher2HFY25operating cash flow,and2)cash released from inventory reductions.\r

Maintain BUY with TP cut by31%to HK$10.0given lower NP forecasts.Our new TP represents20x FY25E P/E,in line with the long-term averagecomparable peers.Key risks:weak consumption,gold price volatility,andworse-than-expected new product sales.