Chow Tai Fock Jewelery (1929)

[cyclone]

Chow Tai Fook to shut protest-hit stores in a sign Hong Kong’s retail slump to persist in 2020
* Jewellery retailer plans to close about a fifth of stores in Hong Kong’s protest-hit tourist districts to focus on growing the mainland China market
* Move signals big retailers are another ‘damning verdict’ on retail sales outlook amid political uncertainty

Pearl Liu
Published: 2:03pm, 15 Jan, 2020
Updated: 2:24pm, 15 Jan, 2020

Chow Tai Fook Jewellery Group’s decision to shut about one-fifth of its stores in protest-hit Hong Kong and focus on growing its presence in the mainland China market suggests a slump in retail sales is not about the reverse soon.

The world’s second-largest jewellery chain by market value has leases on more than 40 of its stores in Hong Kong expiring between April 2020 and March 2021, a spokesperson said in an email late Tuesday. The plan is not to renew as many as 15 of them in tourist districts such as Causeway Bay, Mong Kok and Tsim Sha Tsui, citing “macro headwinds” as a reason.

The decision underscores the grim outlook for Hong Kong’s retail industry, even as seven months of anti-government protests have subsided in recent weeks. Retail sales slumped 23.6 per cent November, following a record 24.4 per cent fall in October, while the economy slipped into a technical recession in the third quarter.

Hardest-hit goods were luxury items such as jewellery and watches, with a staggering 43.5 per cent drop, according to government data.

“The decision is 100 per cent related to the anti-government protests that have discouraged mainland tourists from coming to shop in Hong Kong,” said Louis Tse Ming-kwong, managing director of VC Asset Management. “This is another damning verdict on Hong Kong’s retail business outlook. Hong Kong retailers going northbound in their expansion will become a trend.”

Other retailers may follow to reduce the number of their shops in Hong Kong and reallocate their resources to mainland cities, which could offer cheaper rents and staff costs, Tse said. China’s leadership is also pushing for higher domestic consumption amid the rising purchasing power of the middle class, he added.

Since luxury brand Prada decided last year not to renew its lease in Hong Kong, businesses including BestMart360 and Louis Vuitton have also pulled back from the scene as social unrest dented traffic and the city’s landlords have declined to offer bigger rent reductions to alleviate the crisis.

Hong Kong went through its worst political crisis during the second half of last year, triggered by the unpopular and now-withdrawn extradition bill. As protests escalated, violent clashes with police ensued, leaving the city’s major shopping malls deserted and occasionally smashed.

The local economy is expected to contract 1.9 per cent in 2019, according to the International Monetary Fund, before eking out a small growth this year. The government has since rolled out several rounds of stimulus packages targeted at selected industries to soften the blow.

Century-old French retailer Louis Vuitton have decided to close its flagship store at Times Square when its lease expires in June this year, according to people involved in the matter. Prada, which operates a flagship store on the world’s most expensive shopping street in the world, turned down its landlord’s rent offer and will move out this June, people have said.

Best Mart360, which has had 75 of its 102 shops trashed or firebombed by hard core protesters last year, will expand its business in mainland China to reduce its reliance on the Hong Kong market, according to its founder and chairman Lin Tsz-fung. Fast Retailing Co of Japan saw its overseas sales decline by the most in a decade, partly due to protests in Hong Kong.

Tiffany & Co, the biggest jeweller, revealed last month that its sales in mainland China posted a double-digit growth in the three months to October 31, while its Hong Kong side saw “significant disruptions.” Burberry said sales in Hong Kong had fallen 22 per cent in the six months to September, while its sales in the mainland had accelerated from the “mid to high teens” in the second quarter in mainland.

The company expects to see a net addition of 600 stores in mainland China, according to its expansion plan, on top of an existing 3,636 there.

Chow Tai Fook Jewellery is part of the group founded by the late billionaire Cheng Yu-tung. The company said retail sales in Hong Kong and Macau plunged 38 per cent year-on-year during the quarter ended December 31 last year. That is in addition to a 35 per cent drop in the preceding quarter.

More details in https://www.scmp.com/business/companies/...ngs-retail

[karlmarx]

Good move. Their mainland business will eclipse their HK business in the not too distant future.

While the social unrest may fade, the unsolved economic inequality -- not just against the HK elites, but also against the fast-rising mainland middle-class -- and the increasing tightening of Chinese political control towards 2047, will only mean further large-scale social movements down the road. Those hurt by the physical confrontation are resting after months of struggle. But unless there are economic solutions to heal their wounds, they will return again.

If there are no economic solutions, the situation can also be resolved if China reforms its political attitude/structure. But since XJP will likely in power for a long time, and since he doesn't appear to be moving towards democratic reforms -- quite the opposite, instead -- China will continue to encroach unto HK's political space. As they have been doing in Tibet and Xinjiang.

Eventually, I believe that China will at some point relax its authoritarian stance. That point will probably come when they have exhausted their growth potential, and achieve per capita economic development that is more or less equivalent to its Western peers.

People have demonstrated willingness to accept a greater presence of the state in their lives, in exchange for economic prosperity. Like Singapore. But will people accept an authoritarian state with no/low economic prosperity? I'm not sure if I know of such a case.

[dreamybear]

CTK's EPS ard $0.458 => P/E ard 15.8
(https://www.shareinvestor.com/fundamenta...er=1929.HK)
Assuming a 6% decline in EPS this year, P/E ard 16.9.

Going by the article's 6% decline, P/E doesn't seem to chg much, although personally the valuation's too ex for me.

But what surprised me was that the current share price is not as attractive as during the period of HK protest, which likely affected its HK POS(HK/Macau/Others 100+) more than its China POS(abt 3000). Given the existing grim situation in China, the revenue/profit outlook this year shd be much more challenging. What gives ?

---------------------------------------------------------------------------------
Virus hits China's gold jewellery demand as shoppers stay away
Wed, Feb 12, 2020 - 11:12 AM

.....Metals Focus, a London-based research firm, sees a 6 per cent drop in sales in China this year, extending an estimated 7 per cent drop in 2019 to a seven-year low. It said the decline could turn out to be "particularly acute" given the Chinese New Year has traditionally been the busiest period.....

https://www.businesstimes.com.sg/consume...-stay-away

[karlmarx]

There is still an enormous amount of liquidity in the financial markets.

[dreamybear]

I thought it's a nice gesture for the BOD to keep the investors(or co-owners) updated in the light of this uncertain period. Can more companies pls follow suit ?

If I interpret the announcement correctly - in percentage terms, the HK/Macau sales are more badly hit than mainland China(I did not compute the absolute number - not vested mah). Going by the 50% or so decline thus far this year based on the report below, assuming the covid19 crisis has peaked in China* and things picking up & normalizing in the later half or even the festive 4Q2020, the overall FY revenue/profit decline may not be as bad as 50%(FY num is just my own personal forecast/guesstimate in general, with MOS built in).  

https://www1.hkexnews.hk/listedco/listco...400781.pdf
https://ir.ctfjewellerygroup.com/ir2020_en.pdf  [IR]

* WRAPUP 3-China eases restrictions as other countries report surge in cases,    
  https://www.cnbc.com/2020/02/24/reuters-...cases.html
  Nearly half of China's SMEs resume work amid epidemic
  http://www.xinhuanet.com/english/2020-03...843417.htm

[bmann025]

CTF with another example how useless their gold hedging is:

Gold went from USD 1936 (31/3/22)
down to USD 1660 (30/9/2022)
and back up to USD 1978 (31/3/2023),
hence not much change between start and end of the year.

CTF's gold loan made a fair value gain of 509 Mio in first half, but a fair value loss of 2,055 Mio in 2nd half,
in total al loss of 1,546 Mio for the year, a very substantial loss compared with total pre-tax profit of 7,446 Mio.

https://www1.hkexnews.hk/listedco/listco...800290.pdf

[bmann025]

CTF with HKD 0.46 earnings per share in 1st half.
I think this is a new record high.
https://www1.hkexnews.hk/listedco/listco...300255.pdf

Pre-covid (2019) they earned HKD 0.46 as well, but in the whole year.

[weijian]

A poor set of results with revenue -20% YoY (and PATMI -44%). It has underperformed the general market for gold/silver/jewellery retail which was at -5.8%. It has also underperformed some of the consumer retail SKUs I look at (eg. whisky/cognac and branded bags) which were at -10 to -15%.

A ~10% rise in average selling prices (due to rising gold prices) meant that actual drop in revenue on a "constant price" basis would have been even larger. In other words, the no. of jewellery pieces they have actually sold has dropped even more (-30% and more).

So now, Mgt talks about "pricing optimisation and product offerings of different value propositions to meet customer preferences", it does suggest that it is doing something (price cuts) in response to losing mindshare of the Chinese consumer to its competitors. When the market is bad and you lose out to your competitors, it is a double whammy.

INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2024

According to the National Bureau of Statistics, the total retail sales of consumer goods grew by around 2.7% year-on-year in the Mainland between April and September 2024. However, during this period, gold, silver and jewellery retail sales experienced a decline of 5.8%, which is aligned with our observation that some consumers in the Mainland adopted a wait-and-see attitude towards gold jewellery as a mix of geopolitical tensions and economic uncertainties drove gold prices to unprecedented levels.

The Group’s revenue declined 20.4% to HK$39,408 million in 1HFY2025. With a focus on brand transformation, we continued to execute pricing optimisation and product offerings of different value propositions to meet customer preferences. These were supportive to an increased sales contribution from fixed-price gold products. Coupled with the benefits from gold price increase, the Group’s gross profit margin1 improved considerably by 650 basis points to 31.4% during the period.

Profit attributable to shareholders decreased 44.4% in 1HFY2025 was mainly due to the loss arising from the revaluation of gold loan contracts amid considerable volatility in international gold prices during the period, while there was a gain from the revaluation of gold loans for the same period last year.

ASP of gold jewellery and products increased to HK$6,300 (1HFY2024: HK$5,500) during the period while that of gem-set jewellery rose to HK$8,900 (1HFY2024: HK$8,000).

1H25 ppt: https://ir.ctfjewellerygroup.com/pre241126_en.pdf?2
1H25 report: https://ir.ctfjewellerygroup.com/2024112...182_en.pdf