Core Insights - Chow Tai Fook is undergoing a significant transformation to attract younger consumers while retaining its traditional high-end clientele, amidst challenges such as volatile gold prices and sluggish consumer spending in China [1][2] Group 1: Business Strategy - The company is revamping its product offerings and store formats, focusing on higher-margin, fixed-price jewellery to reduce reliance on lower-margin gold-by-weight sales [1] - Operating margins have reached five-year highs, with retail sales increasing by 17.8% year-over-year for the fiscal third quarter ending December [1] - Chow Tai Fook is reducing its retail footprint, closing underperforming stores, which has led to improved same-store sales, particularly in mainland China [1] Group 2: Market Expansion - The company is expanding internationally, with new store openings planned in Southeast Asia, Australia, and the Middle East, as domestic demand in China slows [2] - Recent store openings in Thailand and Singapore mark the beginning of this global expansion strategy [2] - Analysts suggest that the jewellery market may face challenges abroad compared to other consumer goods, as it requires time to educate consumers culturally [2] Group 3: Product Development - Chow Tai Fook has launched a high jewellery collection to compete with luxury brands like Cartier and Tiffany, while also introducing lower-priced lines aimed at younger buyers [1][2] - The company is leveraging partnerships with brands like Disney and the NBA to appeal to younger demographics [2] - There is a growing demand for unique and rare pieces in the luxury segment, which Chow Tai Fook aims to capitalize on [1]

Summary of the Conference Call on China Jewelry Industry and Laopu Industry Overview - The China jewelry market is expected to experience a normalized growth rate of **4%** in 2026, following a significant **>60%** increase in gold prices throughout 2025, which contributed to approximately **10%** market growth from a low base [1][23] - The sector has outperformed the Hang Seng Index (HSI) with a **70%** increase compared to HSI's **28%** [1] - The overall consumption power remains volatile, leading to a neutral outlook for the sector in 2026 due to a higher base and normalized inelastic demand [1][23] Gold Price Expectations - Goldman Sachs expects the gold price to reach **$5,400/toz** by the end of 2026, indicating a **25%** increase from the end of 2025 [1][24] - The anticipated increase in gold prices is expected to support demand/value growth, although it may create headwinds for gross profit margins (GPM) for weight-based products [1][24] Company-Specific Insights: Laopu - Laopu is projected to have strong earnings growth in 2026, supported by customer acquisitions, an expanded high-quality store network, and GPM improvement [2] - The company benefits from fixed-priced products, which are attractive amid rising gold prices, and shows solid momentum post its October price hike [2] - Laopu's secondary market discount remains low, indicating an advantage in value retention [2][17] Valuation and Market Position - Laopu is trading at a high teens P/E ratio for 2026E, with projected sales and net income growth of **39%** and **55%**, respectively [3] - Chow Tai Fook (CTF) and Luk Fook have seen strong upward re-ratings, with CTF trading at historical averages and Luk Fook at approximately **+1 standard deviation** above historical averages [3] Key Factors Impacting Jewelry Consumption - Positive factors include the expectation of further gold price increases, the ongoing popularity of heritage gold products, and the attractiveness of fixed-priced products [24] - Negative factors include inelastic demand, which is influenced by marriage rates and overall consumption power, which remains soft [24][28] Store Count and Market Dynamics - Leading jewelry retailers have seen a **HSD% to 20%** reduction in store counts since their peak, while emerging brands are expanding [11][35] - Chow Tai Fook and Luk Fook expect fewer store closures in the second half of FY26 compared to the first half of FY25, indicating a stabilization in their store networks [31] Conclusion - The jewelry market in China is expected to face challenges in 2026 due to a higher base and soft consumption power, but Laopu presents a compelling investment opportunity due to its growth potential and market positioning [1][2][3][24]

Summary of Southbound Trading Tracking for China/Hong Kong Consumer Sector Industry Overview - The report focuses on the China/Hong Kong consumer sector, specifically tracking Southbound trading activities in major Hong Kong-listed consumer stocks [7][8]. Key Trends and Data - In November 2025, there was an increase in inflows to 42 major HK-listed consumer stocks covered in the Shanghai/Shenzhen-Hong Kong Stock Connect [1]. - Average Southbound holdings as a percentage of free float rose by 0.5 percentage points month-over-month for the 74 major HK-listed consumer stocks eligible for Connect trading [1]. - Year-to-date (YTD) 2025, average net flows from Southbound increased by 6.5% compared to the end of 2024 [2]. Inflows and Outflows - In November, 42 stocks recorded inflows, while 30 experienced outflows, and 2 had zero net flows [2]. - The top five stocks with inflows in November included: - Youran Dairy: +5.0 percentage points - Chervon: +5.0 percentage points - Tsingtao: +4.7 percentage points - UPC: +3.7 percentage points - Guming: +3.5 percentage points [10]. - The top five stocks with outflows were: - Koolearn: -2.5 percentage points - H&H: -1.9 percentage points - Chow Luk Fuk: -1.8 percentage points - ChaPanda: -1.6 percentage points - Cathay Media: -1.5 percentage points [10]. Category Performance - During November, categories such as Tobacco, IMF, Education, and Luggage recorded average outflows, while other categories had average inflows [10]. - For YTD 2025, categories like Alcoholic Beverages, Home Improvement, Education, and Luggage showed outflows, whereas other categories had average inflows [10]. Notable Stocks and Their Performance - The report highlights significant changes in Southbound stakes as a percentage of free float for various companies: - Xiaocaiyuan: +70.7 percentage points YTD - CR Beverage: +47.6 percentage points YTD - Maogeping: +33.8 percentage points YTD - Youran Dairy: +31.5 percentage points YTD - China Modern Dairy: +30.2 percentage points YTD [10]. - Conversely, Helens experienced a -23.8 percentage point decrease, followed by Samsonite at -17.3 percentage points [10]. Conclusion - The Southbound trading data indicates a positive trend in inflows for the consumer sector, with notable performances from specific stocks. However, certain categories and stocks are experiencing outflows, suggesting a mixed sentiment in the market. Investors should consider these trends when making investment decisions in the China/Hong Kong consumer sector [8][10].

Investment Rating - The report maintains an "Overweight" rating for several companies in the China consumer space, including Laopu, Pop Mart, Luckin, Guming, Mixue, MGP, YUMC, Nongfu, Anta, Yili, CR Beer, BSD, WHG, Hengan, Tingyi, and UPC [2][28]. Core Insights - Companies are "cautiously optimistic" about the 2026 outlook, not assuming additional stimulus policies in their budgets, which could provide upside risk if implemented [2][6]. - Major drivers for sales growth in 2026 include more value product launches, efficiency improvements, and overseas expansion [2][6]. - Leading companies are committed to increasing shareholder returns through dividends and buybacks to compensate for low visibility in business growth [2][6]. Summary by Relevant Sections Consumer Sector - Overall consumption stabilized in Q3 2025, with a significant recovery expected to be challenging without policy support [6]. - Companies are maintaining light channel inventory and rational promotional levels in Q4 2025, anticipating that shipments for the 2026 Chinese New Year holiday sales will be booked in Q1 2026 [6]. - Sales and EPS growth rankings by sector indicate strong growth in IP and soft drinks, followed by sportswear and OEM, home appliances, and QSR restaurants [6]. Shareholder Returns - Companies are increasing their dividend payout ratios, with CR Beer targeting 60% in 2025 and 70-80% over the next 2-3 years [7]. - Yili plans to raise its dividend payout ratio from 70%+ to 75%+ from 2025 to 2027 [7]. - Midea and YUMC are also expected to implement significant buyback programs, with Midea planning over RMB 10 billion for 2025 [7]. Company-Specific Insights - CR Beer expects to drive revenue growth through premiumization and product differentiation, with a focus on maintaining earnings and margin guidance [11]. - WH Group anticipates a decline in hog prices in both China and the US for 2026, while targeting MSD volume growth in packaged meat [11]. - Nongfu Spring aims for double-digit revenue and earnings growth in 2026, with a focus on enhancing market share in bottled water [15]. - Tingyi maintains a DD earnings guidance for 2025, despite pressures in the non-carbonate beverages segment [15]. - Haier targets sales growth of MHSD and OP margin expansion, with plans for significant investment in the US market [20].

Core Viewpoint - LF's 1HFY26 net profit increased by 43% year-on-year to HK$619 million, exceeding expectations due to strong performance and favorable industry sales [1][2] Financial Performance - LF's 1HFY26 revenue grew by 26% year-on-year to HK$6,843 million, benefiting from a lower base last year and improved consumer demand [2] - The net profit of HK$619 million reflects limited hedging losses of HK$384 million and a gross profit margin (GPM) increase of 2 percentage points year-on-year to 34.7% [2] - Strong cost control contributed to the impressive earnings, which surprised the market despite prior positive profit warnings [2] Product and Organizational Strategy - LF's product strategy, particularly the successful launch of the DiaBing series, significantly boosted earnings [2] - The change in wholesaling policy, requiring franchisees to purchase products from LF's headquarters, resulted in a 100% year-on-year increase in wholesale revenue to HK$2,451 million [2] Future Outlook - Management expects GPM in 2HFY26 to remain strong or even higher than in 1HFY26, supported by a pricing strategy following the new VAT policy [3] - The VAT policy is anticipated to widen the price gap between mainland China and Hong Kong/Macau, encouraging more consumer travel to these regions, where LF generates a significant portion of its revenue (56% in 1HFY26) [3]

Financial Data and Key Metrics Changes - The Adjusted Operating Profit (AOP) for FY 2025 increased by 7% year on year to $4.5 billion, and excluding the Free Duty and YQ businesses, AOP rose by 9% to $4.5 billion [10][18] - Adjusted EBITDA increased by 1% to $7.3 billion, while profit attributable to shareholders rose by 4% to $2.2 billion [18] - The total dividend for the year amounted to $0.95 per share, maintaining an attractive dividend yield of 8.3% based on the latest closing price [18][19] - Cash on hand was $20.2 billion, with total available liquidity close to $30 billion, indicating a healthy financial position [19][20] Business Segment Data and Key Metrics Changes - The financial services segment, rebranded from insurance, saw AOP increase by 29% to $1.24 billion [11][30] - The logistics business AOP rose by 3% to $740 million, while the construction segment reported AOP of $790 million, slightly decreasing by 7% when excluding YQ [11][12] - The facilities management segment reported AOP of $89 million, with a 16% increase when excluding Free Duty [11] - Strategic investments surged over 1,000% to $237 million, reflecting aggressive portfolio optimization [12] Market Data and Key Metrics Changes - The occupancy rate for logistics properties in Hong Kong decreased from 96% to 80%, attributed to the renewal of a major client's lease [35] - The occupancy rate for the seven logistics properties in China was maintained at 87%, while the occupancy rate for the Suzhou property dropped to 40% due to tenant termination [35][36] - The construction segment's backlog increased by 24% to $38 billion, with newly awarded contracts rising by 9% to $23.9 billion [39] Company Strategy and Development Direction - The company aims to enhance its diversified business portfolio through acquisitions and disposals, focusing on the fast-growing wealth management business [3][9] - The logistics segment will target undervalued assets in the Greater Bay Area and Yangtze River Delta, seeking properties with strong cash flow [8][13] - The construction segment will focus on government-related projects, which now account for 61% of the total projects in progress [16][40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining stable results despite geopolitical tensions and economic challenges, highlighting operational excellence across diversified business lines [9][12] - The financial services segment is expected to leverage the Chow Tai Fook brand to enhance service delivery and expand its wealth management platform [9][30] - The company anticipates continued growth in AOP and cash flow, with strategic acquisitions planned to replenish profits lost from expiring toll road concessions [67][68] Other Important Information - The company has maintained a progressive dividend policy for 22 consecutive years, with a commitment to consistent dividend distribution [10][23] - The company has shifted a substantial portion of its debt to lower-cost renminbi borrowing, resulting in a decline in average borrowing costs from 4.7% to 4.1% [20][21] - The company has implemented an ESG strategy, achieving a 19% reduction in Scope 1 and 2 emissions compared to FY 2023 [47][49] Q&A Session Summary Question: Updates on the roads and potential disposals - Management indicated that while there have been inquiries about toll road assets, there are no immediate plans for disposal unless the price is right [56] Question: Impact of not investing further in toll roads - Management confirmed that without further investment, the concession period will decrease, but they are confident in replenishing profits through other business segments [67][68] Question: Logistics occupancy targets - Management expressed confidence in reaching an occupancy rate of 85% in Hong Kong, with a longer-term goal of exceeding 90% [60][62] Question: Strategic value of Sunshine Esther acquisition - Management highlighted that integrating Sunshine Esther into the construction group enhances competitive bidding capabilities, particularly for design and build contracts [63][65]

Financial Data and Key Metrics Changes - The Adjusted Operating Profit (AOP) for FY25 increased by 7% year on year to $4.5 billion, and excluding the Free Duty and YQ businesses, AOP rose by 9% to $4.5 billion [10][18] - Adjusted EBITDA increased by 1% to $7.3 billion, while profit attributable to shareholders rose by 4% year on year to $2.2 billion [18] - The total dividend for the year amounted to $0.95 per share, maintaining an attractive dividend yield of 8.3% based on the latest closing price [18][19] Business Segment Data and Key Metrics Changes - The financial services segment, rebranded from insurance, saw AOP increase by 29% to $1.24 billion [11][32] - The logistics business AOP rose by 3% to $740 million, while the construction segment reported AOP of $790 million, a slight decrease of 7% when excluding YQ [11][12] - The facilities management segment recorded AOP of $89 million, with a 16% increase when excluding Free Duty [11] Market Data and Key Metrics Changes - The occupancy rate for ATL in Hong Kong decreased to 80%, but the average rental increased by 8% [37] - The occupancy rate for the seven logistics properties was maintained at 87%, while the occupancy rate for the Shuzhou property decreased to 40% due to tenant issues [37][39] - The construction segment's backlog increased by 24% to $38 billion, with newly awarded contracts rising by 9% to $23.9 billion [40] Company Strategy and Development Direction - The company aims to enhance its financial services segment by leveraging the Chow Tai Fook brand and expanding its wealth management platform [9][13] - The logistics segment will focus on acquiring undervalued assets in the Greater Bay Area and Yangtze River Delta [8][39] - The construction segment will prioritize government-related projects, which now account for 61% of the total projects in progress [15][40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining stable results despite macroeconomic headwinds, with a focus on optimizing the business portfolio [9][23] - The company plans to continue its progressive dividend policy and aims to enhance shareholder value through strategic acquisitions and optimizations [10][24] - Management highlighted the importance of domestic consumption recovery for the logistics segment's performance in the coming year [65] Other Important Information - The company has maintained a strong cash position with $20.2 billion in cash on hand and a net gearing ratio of 37% [19][22] - The company has issued convertible bonds and exchangeable bonds to enhance liquidity and public float [25][28] - The ESG initiatives have progressed, with 39% of bonds and loan facilities coming from green financing and a 19% reduction in Scope 1 and 2 emissions [48][50] Q&A Session Summary Question: Updates on the roads segment and potential disposals - Management indicated that while there have been inquiries about toll road assets, there are no immediate plans for disposals unless the price is right [58] Question: Impact of not investing further in toll roads on the dividend policy - Management reassured that continued growth in other business segments would compensate for any potential loss in cash flow from toll roads, maintaining the dividend policy [70][71] Question: Insights on the construction business and Sunshine Esther acquisition - Management explained that the acquisition enhances competitive bidding capabilities and allows for more accurate cost calculations in tenders [66][68]

Company Actions - Chow Tai Fook's first major fundraising since its 2011 listing [1] Market Reaction - Has turned the Hong Kong jeweler into one of the city's most-shorted stocks [1]

Investment Rating - The report maintains a consistent sector preference, favoring sports brands, diversified retailers, dairy, beverages, and restaurants, while being less favorable towards apparel/footwear OEM, furniture, projectors, discretionary small kitchen appliances, jewelry, and non-super-premium spirits [11]. Core Insights - Consumption in China has shown signs of recovery, with retail sales growth improving to +4.6% year-over-year in 1Q25, and companies in the coverage reporting an average growth of 14% compared to 12% in 4Q24 [1]. - Despite the positive growth, companies remain cautious about the outlook due to ongoing volatility and external factors such as US-China tariff developments impacting consumer confidence [2][1]. - Margin performance in 1Q25 was mixed, with some companies benefiting from favorable raw material prices and cost control, while others faced risks from marketing investments and competition [1]. - Companies are generally maintaining disciplined pricing strategies and healthier inventory levels, although some categories like spirits and sportswear are experiencing challenges due to demand pressures [1]. - The impact of tariffs on earnings and consumer sentiment is significant, with companies cautious about the second half of 2025 amid uncertainties [2]. Summary by Sections Key Findings from 1Q25 Results - Retail sales growth improved to +4.6% year-over-year, with coverage companies reporting an average growth of 14% [1]. - Labor Day consumption growth accelerated, indicating a potential rebound in consumer spending [1]. Expectations for 2Q25 - Companies are cautious about the outlook for 2H25 due to tariff uncertainties, although those with market share gain opportunities may be more resilient [2]. Sector/Stock Preferences - Preferred sectors include sports brands, diversified retailers, dairy, beverages, and restaurants, while least preferred sectors include apparel/footwear OEM and furniture [11]. Macro Data Points - The report notes that macroeconomic data points are solid, but ongoing tariff developments and policy support need to be monitored [11]. Valuation Methodology - The report emphasizes the importance of understanding the valuation methodology and the potential risks associated with it [11].