Investment Rating - The report initiates coverage with a "Buy" rating and sets a target price of HKD 13.69 per share based on a FY26 P/E of 20 times [4]. Core Views - The company is a leading jewelry retailer in China with a market share of 10% as of 2024, demonstrating strong brand power, product quality, and channel strength [13][14]. - The jewelry industry is expected to see a recovery in gold consumption, shifting the competitive advantage from channel strength to product quality [35][40]. - The company is focusing on product optimization and enhancing store operations to drive high-quality growth, with expectations for improved same-store performance and profitability [3][4]. Summary by Sections Company Overview - The company, founded in 1929, has established itself as a benchmark in the jewelry industry, adapting its growth strategies through economic cycles and maintaining a strong market presence with 6,423 retail points as of Q1 2025 [2][13]. Industry Trends - The demand for gold jewelry is anticipated to bottom out and improve, with a notable shift in consumer preferences towards product aesthetics and craftsmanship [35][40]. - The market for gold jewelry in China has grown significantly, with a CAGR of 11% from 2018 to 2023, and gold products now account for 63% of the jewelry market [35][36]. Product Optimization - The company has a strong aesthetic foundation and has successfully integrated modern design with traditional craftsmanship, launching successful product lines such as the "Heritage" series and the "Palace Museum" series, each generating approximately HKD 4 billion in sales [3][58]. - The proportion of fixed-price gold products has increased from 5% in Q3 2023 to 25.6% in Q1 2025, which is expected to enhance gross margins [3][62]. Store Operations - The company has been optimizing its store network, closing 896 underperforming stores to focus on quality over quantity, with plans to slow down the pace of closures moving forward [3][84]. - New store formats have been introduced, which have shown better performance than average same-store sales [3][84]. Financial Projections - The company forecasts net profits of HKD 57.74 billion, HKD 68.36 billion, and HKD 78.36 billion for FY2025, FY2026, and FY2027, respectively, with a projected P/E ratio of 18.4, 15.5, and 13.5 times [4][88].

Investment Rating - The report assigns a "Buy" rating for the company with a target price of HKD 13.69 per share based on a projected FY26 P/E of 20 times [4]. Core Insights - The company is a leading jewelry retailer in China with a market share of 10% as of 2024, maintaining its position as the top player in the industry [2][13]. - The jewelry market is expected to see a recovery in gold consumption demand, shifting the competitive advantage from channel strength to product quality [35][40]. - The company has undergone a brand transformation to adapt to changing consumer preferences and market conditions, focusing on high-quality product offerings and operational efficiency [46][25]. Summary by Sections Company Overview - The company has nearly a century of experience in the jewelry industry, with a focus on craftsmanship and innovation, operating 6,423 retail points as of Q1 2025 [2][13]. - The company has a strong brand heritage and product aesthetic, integrating modern design with traditional craftsmanship [3][19]. Industry Trends - The demand for gold jewelry is anticipated to improve after a period of decline, with a notable increase in consumer interest in high-quality and aesthetically pleasing gold products [35][40]. - The market for gold jewelry in China has grown significantly, with a CAGR of 11% from 2018 to 2023, indicating a robust demand for gold products [35][36]. Product Strategy - The company has shifted its product strategy towards fixed-price gold products, which now account for 25.6% of its gold offerings, significantly up from 5% in Q3 2023 [3][62]. - New product lines, such as the "Chuanfu" and "Palace" series, have achieved sales of approximately HKD 4 billion each, reflecting strong market acceptance [58][60]. Financial Projections - The company forecasts a decline in net profit for FY2025, followed by growth in FY2026 and FY2027, with projected net profits of HKD 57.74 billion, HKD 68.36 billion, and HKD 78.36 billion respectively [4][88]. - The expected revenue for FY2025 is HKD 87.566 billion, with a significant recovery anticipated in subsequent years [88]. Store Operations - The company has been optimizing its store operations by closing underperforming locations, reducing the number of inefficient stores by 896 to 6,274 by FY25 [3][84]. - The focus on enhancing store quality and customer experience is expected to improve same-store sales performance in the coming fiscal years [85][88].

Investment Rating - The investment rating for the company is "Buy" with a 6-month outlook maintained [5] Core Insights - Consumer demand for finely crafted and emotionally connected gold products remains strong despite external macroeconomic factors and high gold prices impacting consumer sentiment [1][3] - The company has successfully implemented product optimization measures, leading to a strong growth momentum in priced products and effective marketing activities during the Lunar New Year, which helped narrow the decline in same-store sales [1][2] - The average selling price of gold products in mainland China increased to HKD 6,400 in FY25Q4 from HKD 5,600 in FY24Q4, indicating resilience in pricing [2] - The company opened two new fashion stores in mainland China, bringing the total to five for the fiscal year, which achieved higher productivity than the average same-store performance shortly after opening [2][9] - The retail value contribution from jewelry embedded with diamonds and other gemstones showed a significant recovery, with a 2.4% year-on-year increase in FY25Q4 [3] Summary by Sections Retail Performance - For FY25Q4, the company's retail value decreased by 11.6%, with mainland China contributing a 10.4% decline, accounting for 89.6% of total sales [1] - Same-store sales in mainland China fell by 13.2%, with a 25.2% drop in same-store volume [1] - The decline in same-store sales in Hong Kong and Macau was 22.5%, influenced by changing consumer preferences and travel patterns [1] Product Categories - The retail value of jewelry embedded with diamonds and other gemstones increased, with the average selling price for jewelry embedded in mainland China soaring to HKD 10,900 from HKD 8,000 in the previous year [2] - The share of priced products in the gold jewelry category rose significantly from 9.4% to 25.6% year-on-year, supporting the group's gross margin resilience [3] Network Optimization - The company focused on improving profitability and maintaining resilience, optimizing its retail network by closing 395 stores in mainland China [4] - Despite the net store closures, the strategic opening of higher-efficiency new stores helped mitigate the impact on market leadership [9]

Core Viewpoint - Chow Tai Fook's retail value experienced a decline in the fourth quarter, influenced by external macroeconomic factors and high gold prices, with a notable drop in sales across various markets [1][2] Group 1: Retail Performance - The group's retail value for the quarter ending March 31, 2025, decreased by 11.6% year-on-year, with mainland China down 10.4% and Hong Kong, Macau, and other markets down 20.7% [1] - Same-store sales in mainland China fell by 13.2% for direct stores and 8.7% for franchise stores, while Hong Kong and Macau saw a similar trend with a 22.5% decline in same-store sales [1] - The average selling price of gold jewelry remained resilient, increasing to HKD 6,400 in mainland China and HKD 8,600 in Hong Kong and Macau [1] Group 2: Product and Market Insights - Despite a challenging macro environment, strong sales of gold-inlaid diamond and other gemstone products led to a significant narrowing of the same-store sales decline for jewelry in mainland China [2] - The average selling price of jewelry in mainland China surged to HKD 10,900, while Hong Kong and Macau reached HKD 16,000 [2] - The company optimized its retail network by closing 395 retail points in mainland China and opening one in Hong Kong and Macau, while also closing three points in Japan and Vietnam [2]