UBS: Cut CHOW TAI FOOK (01929) target price to HK$16. Full-year profit meets expectations but dividend falls short.

UBS released a research report stating that considering the high beta value, the weighted average cost of capital (WACC) of the discounted cash flow (DCF) model was increased from 9.3% to 10%. As a result, the target price of CHOW TAI FOOK (01929) was lowered from HK$18.5 to HK$16.0. This target price corresponds to a 15x forecasted PE ratio for the 2027 fiscal year and a 7% dividend yield. The bank maintains a "buy" rating for CHOW TAI FOOK. UBS stated that in the 2026 fiscal year, CHOW TAI FOOK's revenue and net profit reached HK$94 billion and HK$9 billion respectively, with a year-on-year increase of 5% and 52% respectively, meeting the bank's expectations and the earlier profit forecast of 45% to 55% growth. The dividend payout ratio during the period was 73%, lower than market expectations but within the management's target range of 70% to 80%. UBS pointed out that in April and May of this year, CHOW TAI FOOK's retail sales increased by 14.7% year-on-year, with mainland China retail stores, mainland China franchise stores, and Hong Kong and Macau stores increasing by 19.7%, 15.2%, and 40.6% respectively, showing significant improvement compared to the previous quarter. The management guided that the overall revenue for the 2027 fiscal year would see a mid to high single-digit year-on-year growth, with mainland same-store sales showing high single-digit growth and Hong Kong and Macau recording low double-digit growth. Taking into account the recent strong same-store sales performance and better-than-expected official guidance, UBS has raised its earnings per share forecasts for CHOW TAI FOOK for the 2027 to 2029 fiscal year by 1% to 5%.