Sales recovery will be stronger than expected.
According to Maybank Kim Eng, Chow Tai Fook’s management said sales in Jan-Feb in HK improved. More importantly, luxury sales in China picked up noticeably over the past few months, according to international brands such as Coach, Swatch Group, Burberry and LVMH.
The China market accounted for 87% of Chow Tai Fook’s 1H17 (Sep end) EBIT. Chow Sang Sang expects its adjusted FY16 profit fell 10-23% YoY vs a decline of 25% YoY in 1H16, which also indicates an improving trend.
Here's more from Maybank Kim Eng:
Catalyst: sales recovery stronger than expected amid the "雙春兼潤月" period, or the so-called ‘double spring plus the leap month’. 2017 falls under this period. It’s considered to be an auspicious time in the Chinese calendar.
As a result, more couples are likely to choose to get married this year, which should drive gold, jewellery and banquet sales. According to media outlet hk01, Choifook group, a restaurant chain in HK, its wedding banquet orders this year rose 20% YoY and is targeting 30% revenue growth YoY.
Risks: more store closures, volatility in gold prices and intensifying competition from domestic brands (such as Lao Feng Xiang & Chow Luk Fook).
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