Gem-sets segment growth in China push bullish outlook for Chow Tai Fook

The company has a significant competitive advantage.

Amid forecasts that the gem-sets segment should continue to see long-term secular growth in China, Chow Tai Fook, with its scale and strong balance sheet, is believed to have significant competitive advantage over other smaller rivals in that segment.

According to a research note from Barclays, the company also noted that, on the Hong Kong retail stocks, it remains most positive on Chow Tai Fook (1929.HK, Overweight).

This is due to the company's belief that demand in mainland China continues to be strong despite Hong Kong’s slower growth, and its expectation as well that the tough base comparison will ease after 1HFY15.

Here's more from Barclays:

We remain Equal Weight on Sa Sa (178.HK) and Lifestyle (1212.HK), and Underweight on Trinity (891.HK) as we do not expect many positive catalysts for an acceleration in Hong Kong retail growth, which is a key component of these companies’ earnings.

We expect divergence of mainland visitors to other regions to continue, and we currently do not see resumption of stronger spending trends in the mainland visitors coming to Hong Kong.

Any government policies that negatively impact mainland visitor arrivals remains a negative risk to the sector as well.