Lyon: CHOW TAI FOOK (01929) target price lowered to 10.7 Hong Kong dollars, focusing on gold price fluctuations.

Lyon released a research report, stating that although they appreciate CHOW TAI FOOK's efforts in enhancing retail performance and pricing of gold products (accounting for 35.4% of sales in FY2026), the continued softening of gold prices may bring pressure on sales and gross profit margin due to fluctuations in sales and structure. Visibility on same-store sales growth in mainland China remains low, and the mainland market faces intense competitive risks, thus maintaining a "hold" rating. In response to the downward risks in performance and gross profit margin in FY2026, the bank has lowered net profit forecasts for FY2027 to FY2028 by 2% to 4% and reduced the target price from HKD 11.2 to HKD 10.7, equivalent to a forecasted P/E ratio of 10 times for the next 12 months. CHOW TAI FOOK's performance in the second half of FY2026 ending in late March is in line with expectations, with encouraging trading performance from April to May. However, the guidance for FY2027 ending in late March next year is mixed, as strong revenue growth expectations are expected to be offset by the pressure on gross profit margin brought about by fluctuations in gold prices. The bank's forecast for FY2027 includes a slowdown in the net closure pace to about 500 stores and same-store sales growth of 8% and 18% for mainland self-operated and franchised stores respectively, driving a 5% year-on-year sales growth. Based on CHOW TAI FOOK management's assumption of a gold price of $4,300 per ounce, the bank forecasts gross profit margin and operating profit margin for FY2027 to be 26.5% and 14%, respectively, a decrease of 5.8 and 6 percentage points year-on-year, in line with guidance. Additionally, taking into account fair value gains of approximately HKD 500 million from gold financing borrowing, net profit for FY2027 is expected to increase by 12% to HKD 10.99 billion year-on-year.