Chow Tai Fook suffers 26% drop in overall retail sales value

Its lacklustre CNY performance hasn't improved much.

Chow Tai Fook's SSSG remained poor in 4Q, similar to that reported for the Chinese New Year.

According to a research note from Jefferies, its performance in Hong Kong/Macau was in line with Jefferies' expectations but in Mainland China was much weaker than expected.

Jefferies remains cautious on fundamentals, and expects the operating environment to remain challenging in the NT. However, it believes the low PB could act as a cushion for the stock.

Here's more from Jefferies:

Chow Tai Fook reported poor SSSG in 4QFY16, with group SSSG of -26%, which is similar to the poor performance (-28%) during Chinese New Year (reported on Feb.17, 2016).

Overall group retail sales value dropped 26% yoy in 4QFY16, vs. -11% yoy in 3Q, +4% yoy in 2Q and -6% yoy in 1Q. The company delivered overall group SSSG of -26% in 4QFY16, vs. -15% in 3Q, -3% in 2Q and -15% in 1Q. SSSG for gold products was -27%, vs. -14% in 3Q, +13% in 2Q and -12% in 1Q; that for gem-set jewellery was -23%, vs. -12% in 3Q, -13% in 2Q and -10% in 1QFY.

SSSG was -27% in HK/Macau (40% of group revenue in FY15), vs. -23% in 3Q, -13% in 2Q and -24% in 1Q. This suggests SSSG of c-22% in FY16, largely in-line with our expectation of -21%. SSSG for gem set was -22% and while that for gold was -25%.

SSSG in mainland China self-operated stores (45% of group revenue in FY15) was -25%, vs. -6% in 3Q, +6% in 2Q and -7% in 1Q. This suggests SSSG of c-8% in FY16, below our expectation of -3.5%. SSSG for gem set was -24% in 4QFY16, while that for gold was -29%.

Product mix: Gold products contributed 53% of retail revenue, while gem-set jewellery accounted for 29%. Platinum/k gold products and watches accounted for 13% and 5% of group sales, respectively.

The company opened a net of 2 POS during 4QFY16 (net reduction of 1 store in mainland China, net addition of 1 in HK/Macau, and net addition of 2 Hearts on Fire stores in Taiwan) with the number of POS increasing to 2,319 (+0.1% QoQ and +2.7% yoy).