Company Dynamics - The company reported a retail value growth of 26% year-on-year for 3QFY26 (October-December 2025), with retail values in mainland China, Hong Kong and Macau, and overseas markets growing by 26%, 20% respectively [1] - Same-store sales in mainland China and Hong Kong and Macau increased by 7% and 31%, and 16% respectively [1] - The company achieved better-than-expected accelerated growth in 3QFY26, with retail value and same-store sales growing by 26% and 15% year-on-year, respectively [1] Market Performance - In mainland China, despite a high base effect, retail value grew by 26%, with brand store same-store sales increasing by 31%, outperforming self-operated stores which grew by 7% [1] - The company opened 19 new self-operated stores, bringing the total to 235, while brand stores decreased by 66 to 2,701 [1] - The Hong Kong and Macau markets benefited from product price differences, entertainment activities, and RMB appreciation, with retail value growing by 20% and same-store sales by 16% [1] Product Performance - Pricing for gold products continued to perform well, with same-store sales for self-operated and brand stores in mainland China showing a decline of 2% and an increase of 30% respectively [1] - Same-store sales for priced jewelry grew by 56% and 38% for self-operated and brand stores respectively, with priced gold products increasing by 93% and 60% [1] - In the Hong Kong, Macau, and overseas markets, same-store sales for gold products and priced jewelry grew by 17% and 14% respectively, with priced gold increasing by 27% [1] Sales Momentum - Since the beginning of 2026, terminal sales have continued to show positive momentum, with consumers adapting to high gold prices [2] - The adjustment of the gold value-added tax policy in mainland China has widened the price gap between the Hong Kong market and the mainland, boosting sales performance in the Hong Kong market [2] - The company’s same-store sales performance improved further in the first week of January compared to 3QFY26, indicating ongoing positive trends [2] Earnings Forecast and Valuation - The company maintains its EPS forecasts for FY26 and FY27 at HKD 2.70 and HKD 3.02 respectively, with the current stock price corresponding to 10x and 9x FY26/27 P/E [2] - The target price has been raised by 12% to HKD 34.31, reflecting a valuation uplift due to improved industry sentiment, corresponding to 13x and 11x FY26/27 P/E, indicating a 25% upside potential [2]

Core Viewpoint - UBS reports that China's adjustment of the gold value-added tax (VAT) deduction policy aims to centralize regulation of investment product demand, which may lead to a shift in some demand towards gold ETFs due to reduced liquidity [1] Industry Summary - The new 7% tax will likely be passed on to consumers in the jewelry consumption sector, whether through direct sales or franchise channels [1] - The increase in VAT is expected to exert pressure on recent demand for gold products and reduce the arbitrage opportunities between investment and non-investment demand, such as converting gold bars into jewelry [1] - With enhanced regulatory scrutiny, the market is anticipated to further consolidate, with consumers potentially shifting from smaller shops to larger brands [1] Company Summary - Short-term demand for companies like Lao Pu Gold (06181) and Chow Tai Fook (01929) may face pressure; however, both are expected to further consolidate the market in the long term [1] - Assuming the VAT refund rate decreases from 13% to 6%, Lao Pu Gold's gross margin may experience a pressure of 3 to 4 percentage points; however, the company has already raised prices by over 20% recently, which may offset some of the impact [1] - Chow Tai Fook has recently increased the prices of weight-based gold products by 5%, transferring the margin pressure to consumers [1]

Core Viewpoint - UBS indicates that China's adjustment of the gold value-added tax (VAT) deduction policy aims to centralize regulation of investment product demand, with reduced liquidity potentially driving some demand towards gold ETFs [1] Group 1: Impact on Investment Demand - The increase in VAT will exert pressure on recent gold product demand and reduce the arbitrage opportunities between investment and non-investment demand, such as converting gold bars into jewelry [1] - The tightening of regulatory scrutiny is expected to lead to further market consolidation, with consumers likely shifting from smaller shops to larger brands [1] Group 2: Effects on Jewelry Consumption - UBS believes that the new 7% tax will be passed on to consumers, impacting the jewelry consumption sector regardless of whether sales occur through direct or franchise channels [1] - Short-term demand for Lao Pu Gold and Chow Tai Fook may face pressure, but both companies are expected to further consolidate the market in the long term [1] Group 3: Financial Implications for Companies - Assuming the VAT refund rate decreases from 13% to 6%, Lao Pu Gold's gross margin is estimated to face a pressure of 3 to 4 percentage points; however, the company raised prices by over 20% recently, which may offset some of the impact [1] - Chow Tai Fook has recently increased the prices of weighted gold products by 5%, transferring the gross margin pressure onto consumers [1]