Citi: CHOW TAI FOOK Preliminary Results In Line; Attractive Valuation, Maintains Buy

Citi Research said CHOW TAI FOOK (01929.HK) +0.590 (+5.443%) Short selling $70.93M; Ratio 35.900% issued a positive profit alert, expecting net profit for FY2026 to increase by 45% to 55%, in line with the brokers and market consensus forecasts. Management attributed the expansion in gross margin to rising gold prices, improved sales mix in retail operations and fixed-price jewellery, as well as operating leverage from prudent cost control.The broker forecast the groups revenue to grow by 1% in FY2027, slowing from 3% growth in FY2026. In the mainland market, which accounts for 81% of group revenue, revenue is expected to decline by 4%, compared with 1% growth in FY2026, mainly due to slower same-store sales growth and continued store closures. For Hong Kong, Macau and overseas markets, revenue is projected to increase by 21%, accelerating from 16% growth in FY2026, primarily benefiting from favourable exchange rate movements and a widening price gap following changes in value-added tax policies, driving faster same-store sales growth.Citi estimated that CHOW TAI FOOKs gross margin will decline by 5 ppts YoY to 27.6% in FY2027, mainly assuming a negative impact from slower increases in gold prices. Due to margin contraction, operating margin will fall by 5 ppts from 20.3% to 15.2%. Hedging losses are expected to narrow from 6.7% of revenue to 1.3%, while financing costs will remain broadly stable. As a result, net profit margin in FY2027 is projected to remain stable YoY.Although investors are concerned that CHOW TAI FOOKs gross margin may have peaked, Citi believes such risks are largely reflected in the share price. The stock is currently trading at a forecast forward price-to-earnings ratio of 12x, with a dividend yield of 7%, indicating an attractive valuation. Citi maintained its Buy rating on CHOW TAI FOOK with a TP of HKD16.7. (hc/j)(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2026-05-06 16:25.)This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation.