Summary of LUK FOOK Holdings Conference Call Company Overview - **Company**: LUK FOOK Holdings - **Date**: January 16, 2026 Key Industry Insights - **Market Dynamics**: The adjustment of value-added tax (VAT) in mainland China and the appreciation of the Renminbi have enhanced the price competitiveness of the Hong Kong and Macau markets, attracting more mainland tourists, which benefits LUK FOOK's retail business in these regions. Approximately 75% of tourists in this market are from mainland China [2][7]. - **Product Differentiation**: LUK FOOK has introduced differentiated products such as ice diamonds and IP collaboration items, with gold-inlaid diamond products showing particularly strong performance, effectively driving overall sales growth and achieving double-digit growth in the mainland market [2][5]. Financial Performance - **Sales Growth**: The company expects double-digit growth in both revenue and profit for the full year, with profit growth anticipated to outpace revenue growth [3][25]. - **Gold Price Impact**: The demand for fixed-price gold products remains strong, with average transaction prices increasing by 50-60% due to rising gold prices, leading to increased sales volume [2][8][10]. Store Network Strategy - **Store Management**: LUK FOOK has been optimizing its store network by reducing the number of stores in lower-tier cities while increasing the number of direct-operated and premium brand stores. The company has accelerated its overseas expansion, expecting to complete the goal of opening 50 new stores within three years ahead of schedule [2][6][20]. - **Store Closures**: In the first three quarters of 2025, approximately 200 stores were closed, with a net closure of over 170 stores in the first half of the fiscal year [6]. Pricing Strategy - **Price Adjustments**: LUK FOOK has raised gold prices twice in the fourth quarter, with an 8% increase in weight-based gold prices due to VAT changes. The sales differences before and after price adjustments are gradually decreasing [11][21]. Product Performance - **Gold and Diamond Sales**: The sales of K-gold and diamond products are recovering, but the sales increase of weight-based gold products has been more significant due to recent gold price hikes [10]. - **New Product Launches**: The Tang Palace Night Banquet series has performed well, accounting for about 1% of overall sales, with plans to introduce more IP series in the next three years to maintain market competitiveness [12][29]. Overseas Market Insights - **Market Performance**: The overseas market is performing better than the mainland, with North America showing significant sales levels comparable to Hong Kong. The company plans to open more brand franchise stores in the U.S. and Southeast Asia [2][18][20]. - **Profitability**: Most overseas direct-operated stores are profitable, with a profit margin reaching double digits [30]. Consumer Behavior - **Tourist Spending**: The price difference between the Hong Kong/Macau markets and the mainland positively impacts sales, with an increase in tourist numbers and a decrease in purchasing through agents [7]. Future Outlook - **Growth Projections**: The company anticipates that the overall performance will exceed previous expectations, with a focus on maintaining a stable growth trajectory through strategic store openings and product differentiation [25][30]. Additional Considerations - **Dividend Policy**: The dividend policy remains unchanged, with a minimum dividend of HKD 1.1, and a payout ratio of 45% for amounts exceeding this threshold [26].

Core Viewpoint - Haitong International has given a "Buy" rating to Luk Fook Holdings (00590), predicting a net profit of HKD 15.78 billion, 18.00 billion, and 19.77 billion for the fiscal years 2026-2028, with a target price of HKD 40.35 based on a 15x PE for FY26 [1] Group 1: Financial Performance - For FY26H1, the company reported revenue of HKD 68.43 billion, a year-on-year increase of 25.6%, with a gross profit of HKD 23.73 billion, up 33.2%, resulting in a gross margin of 34.7%, an increase of 2.0 percentage points [1] - Operating profit reached HKD 7.80 billion, reflecting a 45.4% year-on-year growth, with an operating margin of 11.4%, up 1.6 percentage points [1] - The net profit attributable to shareholders was HKD 6.19 billion, a 42.5% increase year-on-year, with a net margin of 8.8%, up 1.1 percentage points [1] - The interim dividend per share was HKD 0.55, with a payout ratio of 52% [1] Group 2: Sales and Market Expansion - Same-store sales improved, with overall same-store sales for FY26H1 increasing by 7.7%. By category, same-store sales for gold and platinum increased by 2.7%, while same-store sales for priced jewelry surged by 22.2% [2] - By region, same-store sales in Hong Kong, Macau, and overseas rose by 7.2%, while same-store sales in mainland China increased by 10.9%. From October 1 to November 21, same-store sales in all markets showed double-digit growth, with mainland China showing significant improvement compared to FY26Q2 [2] - As of FY26H1, the total number of stores globally was 3,113, with a net decrease of 174 stores. The company plans to open 20 new stores overseas in FY26 and enter at least three new countries while adding 50 overseas stores over the next three years [2] Group 3: Margin and Cost Management - The gross margin improved to 34.7%, up 2.0 percentage points, driven by rising gold prices and an increased proportion of priced jewelry sales. Sales of gold and platinum amounted to HKD 40.96 billion, up 11.0%, with a gross margin of 30.3%, an increase of 2.8 percentage points [3] - Sales of priced jewelry reached HKD 22.76 billion, a 67.9% increase, with a gross margin of 36.8%, down 0.5 percentage points. The introduction of new products like ice diamonds significantly boosted wholesale revenue [3] - The sales expense ratio decreased to 16.3%, down 1.5 percentage points, and the administrative expense ratio fell to 2.7%, down 0.8 percentage points, benefiting from operational leverage [3]

Core Viewpoint - Six福 Group reported strong financial performance for FY26H1, with revenue of HKD 6.84 billion, up 25.6% year-on-year, and net profit of HKD 600 million, up 44.1%, aligning with previous forecasts [1][2] Financial Performance - Revenue breakdown shows significant growth in pricing jewelry, with revenue from gold and platinum products at HKD 4.1 billion, up 11.0%, and pricing jewelry revenue at HKD 2.28 billion, up 67.9%, increasing its share of total sales by 8.8 percentage points to 35.7% [1][2] - Gross margin improved by 2.0 percentage points to 34.7%, reaching a historical high, driven by rising gold prices and operational leverage [2] - The net profit margin increased by 1.1 percentage points to 8.8% due to reduced selling and administrative expenses [2] Market Expansion and Store Strategy - The company operates a total of 3,113 stores globally, with a net closure of 174 stores in FY26H1, primarily in mainland China, while opening 8 new overseas stores, including its first in Vietnam [2] - The company plans to open at least 50 new overseas stores and enter at least 3 new countries from FY26 to FY28 [2] Profit Forecast and Valuation - The profit forecast for FY26-FY28 has been raised by 5%/6%/6% to HKD 1.548 billion, HKD 1.733 billion, and HKD 1.918 billion respectively, reflecting continued positive same-store sales [3] - The target price is set at HKD 35.1, corresponding to a 14 times PE for FY26, maintaining a "buy" rating [3]

Investment Rating - The report maintains a "Buy" rating for the company [6][5]. Core Insights - The company reported a revenue of HKD 6.84 billion for FY26H1, representing a year-on-year increase of 25.6%, and a net profit of HKD 600 million, up 44.1%, aligning with previous forecasts [1]. - The growth in revenue is attributed to effective product differentiation and sales strategies, particularly in the pricing jewelry segment, which saw a revenue increase of 67.9% [2]. - The company plans to distribute an interim dividend of HKD 0.55 per share, with a payout ratio of 52%, indicating a commitment to shareholder returns [1]. Revenue Breakdown - By product, revenue from gold and platinum products was HKD 4.10 billion, up 11.0%, while pricing jewelry revenue reached HKD 2.28 billion, up 67.9%, increasing its share of total sales by 8.8 percentage points to 35.7% [2]. - Retail business revenue was HKD 5.26 billion, up 12.8%, and wholesale revenue surged to HKD 1.12 billion, up 190.6%, driven by increased product categories and strong demand for new items [2]. - Regionally, revenue from Hong Kong, Macau, and overseas markets was HKD 3.86 billion, up 9.9%, while mainland China revenue was HKD 2.98 billion, up 54.2% [2]. Profitability and Margin Analysis - The company's gross margin improved by 2.0 percentage points to 34.7%, reaching a historical high, with gold and platinum products' gross margin increasing by 2.8 percentage points to 30.3% [3]. - The net profit margin increased by 1.1 percentage points to 8.8%, supported by operational leverage and a decrease in selling and administrative expense ratios [3]. Store Expansion and Market Strategy - The company operated a total of 3,113 stores globally, with 3,000 in mainland China and 113 in Hong Kong, Macau, and overseas, closing 174 stores in the first half of FY26 [4]. - The company is nearing the end of its store closure phase and plans to open at least 50 new overseas stores by FY28, including its first entry into the Vietnamese market [4]. Earnings Forecast and Valuation - The net profit forecasts for FY26 to FY28 have been raised by 5% to 6%, now projected at HKD 1.55 billion, HKD 1.73 billion, and HKD 1.92 billion respectively [5]. - The target price is set at HKD 35.10, corresponding to a 14x PE for FY26, reflecting the company's improving same-store sales and balanced regional coverage [5].