BofA: Lowered target price of CHOW TAI FOOK (01929) to 12.9 Hong Kong dollars and reduced profit forecast, reiterated "outperforming the market"

Macquarie released a research report stating that, in response to the adjustment in gold prices, it has lowered CHOW TAI FOOK's (01929) net profit forecast for the fiscal years 2027 and 2028 by 10.6% and 11.9% respectively. This was due to the downward adjustment of the target valuation multiple, with the forecasted price-to-earnings ratio for the fiscal year 2028 being lowered from 15 times to 10 times, aligning with peers. The target price has been lowered by 35% from HK$19 to HK$12.9, but the "outperform the market" rating is maintained. Additionally, a stable dividend payout ratio of 70% to 80% should provide support. CHOW TAI FOOK expects high single-digit revenue growth for the fiscal year ending in March next year, with mainland and Hong Kong and Macau same-store sales growth ranging from high single digits to low double digits. The group expects the gross profit margin for the fiscal year 2027 to normalize to 26.5% to 27.5%, compared to 32.3% for the fiscal year ending in March this year. The bank believes that the group's operating profit margin guidance for the fiscal year 2027 is 14%, compared to 20% for the fiscal year 2026, indicating an upside potential. The report mentioned that from April to May this year, same-store sales growth for CHOW TAI FOOK's self-operated and franchised stores in mainland China were 20% and 15% respectively, while in the Hong Kong and Macau region it was 40.6%. Following the gold price correction, sales growth for gold jewelry priced by weight outperformed that of priced jewelry. The newly launched "Wanxiang" series, introduced since April, has already generated retail sales value exceeding HK$500 million, with sales from new customers accounting for over 20%. The annual sales target is HK$2 billion. Macquarie stated that CHOW TAI FOOK's management has prioritized product optimization and brand elevation, expecting a reduction in the number of store closures in mainland China for the fiscal year 2027. In the fiscal year 2026, the group opened 8 new luxury-designed stores in mainland China, with productivity averaging 8 to 10 times that of traditional stores, with the goal of expanding the luxury store base to 50 by the fiscal year 2030.