Chow Tai Fook 1HFY17 revenue slides 23.5% y-o-y to HKD21.5b

Recent mini-gold rush is to blame.

Chow Tai Fook's revenue declined 23.5% yoy to HKD21.5b, mainly due to weak demand and high base last year caused by a mini-Gold rush in last July/August in mainland China.

According to a research note from Jefferies, further, SSSG declined 20.9% in Mainland China and declined 25.7% in Hong Kong and Macau, making Q217 SSSG the worst in the past six quarters.

Although gold and platinum/karat gold still accounted for 66% of revenue, gem set’s proportion kept going up. SSSG decline for Gold was -24.2%; whereas that for gem set was -14.7%. Also, retail sales value in tier 2 and 3 cities declined 18%, poorer than -14.8% for tier 1 cities.

Here's more from Jefferies:

Shopping malls had better performance than department stores and standalone stores in terms of retail sales value decline.

Gross profit dropped 13.1% yoy to RMB6.8b but GP margin expanded 3.8ppt yoy to 31.7% mainly due to better product mix and an uplift in GPM of gem-set. Core operating profit dropped 7.9% yoy to HKD1.9b; OP margin expanded 1.5 ppt to 8.8%, mainly due to GPM expansion offsetting operating deleverage.

Net profit dropped 21.5% yoy to HKD1.2b, implying net margin of 5.7% in 1H17 vs 5.5% in 1H16.

Earnings outlook: We expect SSSG of -16.0% and -3.0% in HK/Macau and mainland China, respectively. We forecast revenue of HKD52.8bn (-7% yoy) in FY17e. We expect GPM of 29.3% and OPM of 8% in FY17. We forecast net profits of HKD3.2bn, implying net margin of 6.1% in FY17e vs 5.2% in FY16, partly reflecting rising GPM and lower effective tax rate.