Group 1 - The total digital consumption in China is projected to reach 9.37 trillion yuan in the first half of 2025, with the user base exceeding 958 million, indicating that digital consumption is becoming a significant driver of overall consumption [1][2] - Digital consumption users account for 85.3% of the total internet users and 68.1% of the national population, with physical goods making up 66.3% of digital consumption, digital services at 29.2%, and digital content at 4.5% [1] - The trend of "AI + consumption" is gaining momentum, with 45% of online shopping users having purchased smart products such as smart home devices, digital gadgets, and wearables [1] Group 2 - Niche hobbies are breaking into the mainstream, with the "Guzi economy" (related to secondary culture) and pet consumption gaining visibility through digital media, showcasing strong consumer potential [2] - The user base for online blind boxes, IP-related products, and secondary culture products exceeds 90 million, while pet digital consumption is rising with smart hardware and social services for pets [2] - As of June, the user base for micro-short dramas reached 526 million, and online gaming users reached 584 million, indicating a rich supply of digital entertainment content that is driving consumption across various sectors [2]

Investment Rating - The report assigns an "Outperform" rating for Chow Tai Fook, expecting a relative return exceeding 10% over the next 12-18 months [21]. Core Insights - Chow Tai Fook's retail sales increased by 4.1% year-on-year in 2QFY26, with Mainland China growing by 3.0% and Hong Kong/Macau by 11.4% [2][8]. - Same-store sales returned to positive growth across all channels, driven primarily by higher average selling prices (ASP), despite a decline in sales volume [9][10]. - Priced gold products emerged as a key growth driver, with retail sales surging by 43.7% year-on-year, significantly enhancing the company's gross margin and profitability [10][11]. - The company is focusing on optimizing its retail network, closing approximately 300 stores in Mainland China while opening new high-efficiency stores in prime locations [12]. - Management anticipates FY26 to be a year of profitability recovery, with gross margin and operating profit expected to exceed previous guidance due to structural improvements and a higher contribution from priced gold [13]. Summary by Sections Retail Performance - Group retail sales for 2QFY26 increased by 4.1% year-on-year, with same-store sales in Mainland China and Hong Kong/Macau showing positive growth [2][9]. - The average selling price in Mainland China rose from HK$6,400 to HK$7,900, while in Hong Kong and Macau, it increased from HK$9,400 to HK$11,700 [9]. Product Mix and Growth Drivers - Priced gold became the core growth engine, with same-store sales of gold jewelry in Mainland China and Hong Kong/Macau increasing by 10.6% and 10.4%, respectively [10]. - The proportion of priced gold products in Mainland China rose to 29.9%, with management indicating potential for further increases based on market acceptance [10][11]. Brand and Marketing Strategy - The company is enhancing brand recognition through iconic collections and collaborations with popular IPs, targeting younger consumers [11]. - New product lines, such as the "Tian Yuan Di Fang" collection, integrate traditional Chinese elements to attract a broader audience [11]. Channel Optimization - Chow Tai Fook is optimizing its retail network by closing underperforming stores and opening new concept stores with higher sales potential [12]. - E-commerce sales grew by 28.1% year-on-year, contributing significantly to overall retail performance [12]. Financial Outlook - Management expects improved gross margin and operating profit for 1HFY26, driven by a favorable product mix and effective cost management [13]. - The company is preparing for a strong second half of FY26, coinciding with wedding and festive seasons, which may further boost demand [13].