UBS: CHOW TAI FOOK (01929) first quarter sales in line with expectations, target price raised to HK$16.5

UBS released a research report stating that they have raised their earnings forecast for CHOW TAI FOOK (01929) for the fiscal years 2027 to 2029 by 0.1% to reflect recent gross margin pressure and potential hedging gains. The target price has been raised from HK$16 to HK$16.5, maintaining a "buy" rating. As of the end of June this year, CHOW TAI FOOK's first quarter sales for the fiscal year 2027 increased by 15.1% year-on-year, with mainland China and markets outside of mainland China and Hong Kong growing by 10.7% and 44.8% respectively, roughly meeting market expectations. In terms of same-store sales growth, mainland China owned stores, mainland China franchise stores, and stores in Hong Kong and Macau increased by 19.6%, 15.7%, and 41.7% respectively. The performance of the mainland China online channels was strong, with a year-on-year increase of 29%. UBS pointed out that CHOW TAI FOOK's management provided guidance for the fiscal year 2027 in June, expecting overall revenue to increase by mid- to high single digits year-on-year, mainland China same-store sales to increase by mid- to high single digits, and Hong Kong and Macau to increase by low double digits. It is expected that the gross profit margin will be between 26.5% and 27.5%, with an operating profit margin of approximately 14%. Assuming that the price of gold remains at $4,300 per ounce, gold hedging gains during the period are expected to be around HK$500 million to HK$800 million, compared to a hedge loss of HK$6.275 billion in the fiscal year 2026. Due to the current price of gold being lower than the company's forecast level, the management expects overall revenue and net profit to remain relatively unchanged, taking into account pressure on sales of priced gold products and increased sales of by-weight gold.