Guosen: Hong Kong-funded jewelry companies are gradually returning to the growth track, and we recommend focusing on CHOW TAI FOOK (01929) and others.

Guosen released a research report stating that overall, Hong Kong-funded jewelry companies have shown strong adaptability in the industry changes in recent years, despite some short-term struggles. Through multidimensional transformation and reform from products to channels, relying on their strong brand power, they are gradually returning to a growth track and driving continuous valuation recovery. Guosen particularly recommends CHOW TAI FOOK (01929), LUK FOOK HOLD (00590), and CHOW SANG SANG (00116). Key points from Guosen: - The performance of Hong Kong-funded jewelry companies is recovering, and their stock prices are showing a bright rebound trend. - This year, individual stocks in the gold and jewelry sector have performed well. In addition to new consumer themes like LAOPU GOLD and Guangdong CHJ Industry, traditional Hong Kong-funded jewelry leaders such as CHOW TAI FOOK, LUK FOOK HOLD, and CHOW SANG SANG have also performed well. Despite cooling consumption trends due to sector rotation, these companies have continued to rise against the trend: as of September 10, 2025, their gains were 151%, 95%, and 135% respectively. The rise is not simply due to "catch-up", but also from the companies' fundamental reforms, such as LUK FOOK HOLD accelerating same-store sales growth in Mainland China by 19% in the last 4-6 months, and CHOW SANG SANG's 76% year-on-year growth in net profit in H1 2025. With further realization of future transformation logic and improvement space opening, valuation levels will continue to recover from low levels, presenting a Davos double-hit feature. - Industry changes: The underlying logic of jewelry consumption has formed a "dual value payment for fashion and value preservation." - In recent years, rising gold prices and consumers' increasing disdain for high-premium categories like diamond inlays have strengthened the awareness of gold's value preservation properties. However, the rapid rise in gold prices has suppressed the release of some traditional demands, and cost-added pricing of weight-based gold products also faces margin pressures. At the same time, breakthroughs in design craftsmanship have significantly improved the fashion attributes of gold, opening up a demand scenario for self-enjoyment consumption. Jewelry with a fixed price that combines "fashion + value preservation" has seen growth of over 100% in revenue. Additionally, fixed-price products with premium margins have achieved gross profit margins of 30%-40%, ensuring enterprise profitability. - Self-transformation of Hong Kong-funded jewelry companies: A triple upgrade of product strength, channel strength, and brand strength. 1) Increasing product design and differentiation layout, the revenue contribution of fixed-price gold jewelry has continued to grow in recent years. For example, in the 2025 fiscal year, CHOW TAI FOOk's contribution value from fixed-price products in Mainland China increased from 7.1% to 19.2%; LUK FOOK HOLD achieved high double-digit growth in fixed-price gold products in same-store sales. 2) Store transformation optimization focuses on high-quality premium locations and service experiences to improve individual store output and withstand short-term store contraction pressures. 3) Deep-rooted brand strength, reshaping a youthful label through social media marketing, IP collaborations, and celebrity endorsements. Recently, major Hong Kong-funded jewelry brands have seen high double-digit growth in exposure on Xiaohongshu (Little Red Book), with over 80% of their fans being aged 18-34. Risk warning: Terminal sentiment for jewelry consumption is below expectations; significant fluctuations in gold prices; failure to adapt to new trends in products and channels; deteriorating industry competition environment; poor management of franchisees.