More lucrative sales mix may be on the way for Hong Kong jewellers

More profitable segments should boost earnings.

Hong Kong jewelers are expected to have a more profitable sales mix, as rising share of more profitable segments should boost earnings.

According to a research note from Nomura, sales contribution from lower-priced (GPM 1-3% higher than higher-priced) and gem-set items (GPM 30-50% vs. gold’s teens), as well as from China (GPM 1-2% above HK’s) continue to rise and lift profitability.

Nomura expects the momentum to continue, having sales from the Mainlanders to comprise 70-85% of total by CY16F vs. 60-78% in CY13, and non-gold sales to make up 40-48% vs. 40% in CY13.

Here’s more from Nomura:

With regards to the recent Occupy Central protest, we expect the impact on earnings from store closures will be less than 0.5% of their current fiscal year as some Chinese tourists will divert to stores in unaffected areas.

We believe the sequential sales improvement from July in PRC and easier comps starting from Nov-14 will help jewellers’ share price pick-ups.