Core Viewpoint - Dongwu Securities has initiated coverage on Luk Fook Holdings (00590), a leading jewelry retailer in Hong Kong and mainland China, with a "Buy" rating following its successful acquisition of a controlling stake in King Fook International Holdings in 2024, enhancing its multi-brand portfolio [1] Group 1: Financial Performance - As of FY2025, Luk Fook achieved revenue of HKD 13.34 billion, reflecting a year-on-year decline of 13.0%, and a net profit attributable to shareholders of HKD 1.1 billion, down 37.8% year-on-year [2] - The company reported inventory levels for gold and platinum/price jewelry at HKD 5.46 billion and HKD 5.28 billion, respectively, with increases of 22.9% and 3.0% year-on-year, benefiting from rising gold prices [2] Group 2: Revenue Breakdown - In FY2025, revenue from retail, wholesale, and brand businesses was HKD 11.03 billion, HKD 1.41 billion, and HKD 0.90 billion, showing declines of 13.5%, 8.8%, and 12.6% year-on-year, with respective contributions of 82.7%, 10.5%, and 6.8% to total revenue [3] - Revenue from mainland China and Hong Kong/Macau accounted for 39.5% and 60.5% of total revenue, with respective year-on-year changes of -0.2% and -19.6% [3] Group 3: Brand Strategy - Luk Fook has established a comprehensive multi-brand matrix, including Luk Fook Jewelry, King Fook, and others, catering to diverse consumer needs across various segments [4] - The core brand, Luk Fook Jewelry, had 2,805 stores globally by the end of FY2025, with a new product line "Ice·Diamond Light Shadow Gold" launched in November 2024, utilizing CNC color technology [4] Group 4: Expansion Plans - As of March 2025, Luk Fook operates 3,287 stores across 11 countries and regions, with plans to enter three new countries and add 50 overseas stores over the next three years [5] - The company is focusing on expanding its presence in mainland China through various store styles and enhancing e-commerce sales via celebrity collaborations and IP partnerships [5] Group 5: Profit Forecast - The company is expected to see a steady recovery in performance from FY2026 onwards, with projected net profits of HKD 1.52 billion, HKD 1.73 billion, and HKD 1.93 billion for FY2026 to FY2028, representing year-on-year growth of 39%, 13%, and 12% respectively [6] - The latest closing price corresponds to a price-to-earnings ratio of 10x, 9x, and 8x for FY2026 to FY2028 [6]