Morgan Stanley: CHOW TAI FOOK (01929) raises gross margin guidance more than expected, maintains target price of HK$19 and "Buy" rating.

Morgan Stanley released a research report stating that it has raised its earnings forecast for CHOW TAI FOOK (01929) for the fiscal year 2026 by 7% per share, and the net profit forecast by 6% to 8.75 billion yuan; the earnings forecast for 2027 to 2028 per share was also raised by 2%, as the expected gold price is expected to remain roughly at current levels, coupled with the gradual recovery of the macro environment. The target price is maintained at HK$19 with a "buy" rating. The report pointed out that CHOW TAI FOOK's mid-term performance meets expectations. The company has raised its gross profit margin guidance from 28.3% to 28.7% to 31% to 32%, a higher adjustment than expected by the bank. Taking into account higher hedge losses, the latest guidance implies that net profit for the fiscal year 2026 will increase by 44% to 55% year-on-year to 8.5 to 9.1 billion yuan, a 75% to 90% year-on-year increase in the second half of the fiscal year. The report mentioned that during the period from October 1 to November 18, same-store sales growth in mainland self-operated stores reached 48.7%, franchise stores grew by 38.8%, and the Hong Kong and Macau markets also grew by 18.3%. Despite the price increases after the value-added tax reform, demand in November still maintained double-digit growth. The bank pointed out that although recent sales have been strong, the company still maintains its original revenue guidance. Management admits to being cautious about the revenue guidance, as they are still observing the demand trends after the value-added tax reform and will accordingly update the guidance. The current demand trend has exceeded management's expectations, and the company is confident in the competitive landscape, believing that the tax reform will benefit leading brands like CHOW TAI FOOK.