Goldman Sachs: Raised LUK FOOK HOLD (00590) target price to HK$23, Maintain "Neutral" rating

Goldman Sachs released a research report stating that considering the uncertainty of Luk Fook Holdings' (00590) store closures and same-store sales growth due to high base numbers in the coming quarters, as well as intensified competition in the fixed price gold jewelry market, along with the sustained impact on profitability from the acquisition of Gold Supreme, they believe that there is limited upside potential for Luk Fook Holdings and maintain a "neutral" rating. Goldman Sachs has raised Luk Fook Holdings' 12-month target price to HK$23, based on a forward P/E ratio of 9 times from March 2026 to March 2027, still at a discount of 40% to Chow Tai Fook's (01929) historical average, and consistent with their historical average low of 1 standard deviation. The report pointed out that as of the end of June, Luk Fook Holdings recorded a 19% year-on-year increase in same-store sales in Mainland China, Hong Kong, and Macau, compared to a 3% increase and a 12% decrease respectively in same-store sales in the quarter ending in March. Overall same-store sales growth for the group increased by 5% year-on-year, primarily driven by a 73% growth in fixed price gold products, while weighted gold and diamond products fell by 27% and 17% respectively. Goldman Sachs stated that Luk Fook Holdings had closed more stores than expected, with a net closure of 128 stores in Mainland China, higher than the net closure of 60 stores in the quarter ending in March, indicating a faster pace of closures compared to the bank's forecast of 48 closures in the first half of the 2026 fiscal year. In contrast, there was a net opening of 3 stores in Hong Kong, Macau, and overseas markets in the quarter ending in June, ahead of Goldman Sachs' forecast of 3 net openings in the first half of the 2026 fiscal year. Goldman Sachs revised down their net profit forecasts for the 2026 and 2027 fiscal years for Luk Fook Holdings by 6% and 1% respectively, reflecting slower recovery in same-store sales in Hong Kong and Macau, and increased cost pressures from the acquisition of Gold Supreme. Goldman Sachs also extended Luk Fook Holdings' forward P/E ratio benchmark from the 2026 fiscal year to the average of the 2026 to 2027 fiscal years, and raised the P/E ratio from 7 times to 9 times, in line with its historical average, reflecting improved market sentiment in the gold jewelry industry led by Laopu Gold (06181) and a bottoming out trend in same-store sales growth.