And the operating environment remains challenging.
It has been observed that Chow Tai Fook's sales performance deteriorated in Jul.-Sep.2016, mainly due to a high base for gold SSSG.
According to a research note from Jefferies, gold price decline in Jul-Sep.2015 spurred surge in sales of gold products.
The report believes the operating environment is unlikely to rebound meaningfully in the NT, but meaningful further deterioration in SSSG is unlikely with a lower base in 2H. Maintain Hold.
Here's more from Jefferies:
Poor SSSG in 2QFY17 (end Sep.2016). CTF's sales performance in 2QFY17 deteriorated from 1QFY17, mainly due to poor performance of gold products as a result of high base.
Retail revenue in HK/Macau (39% of group revenue in FY16) declined 33% yoy in 2QFY17, vs. -22% yoy in 1QFY17 and -5% in 2QFY16. SSSG was -30% in HK/Macau, vs. -20% in 1QFY17, mainly driven by decline in gold (-36% SSSG, vs. -12% in 1Q) on a high base (SSSG for gold was +4% in 2QFY16 vs. -25% in 1QFY16) as gold price fell in 2QFY16 and spurred demand. SSSG for gem-set jewellery was -23% in 2QFY16, vs. -27% in 1QFY17.
The proportion of transactions settled by China UnionPay or RMB in HK/Macau (proxy for sales to mainland China tourists) dropped to 43% in 2QFY17, vs. 57% in 2QFY16.
Retail revenue in mainland China (47% of group revenue in FY16) dropped 17% yoy, vs. -13% yoy in 1QFY17 and +9% in 2QFY16. SSSG was -22% (-17% for gem set and -27% for gold), vs. -17% in 1QFY17.
The company had net addition of 11 POS during Jul-Sep.2016 (net reduction of 2 in HK/Macau/other markets, and net addition of 13 in mainland China) with number of POS reaching 2,326 (+1.7% yoy, +0.5% QoQ).
Our views and earnings outlook. We expect the market to remain challenging, but expect product mix change, and cost savings to mildly ease margin pressure. We expect SSSG of -16% and -3% in HK/Macau and mainland China, respectively, in FY17e; expect revenue to reach HKD52.9bn (-6.6% yoy, in line with consensus estimates).
In a nutshell, we expect net profit to reach HKD3.2bn (+8.8% yoy, 6.1% net margin) in FY17e, which is in line with consensus estimates.
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