Bank of America Securities: Raise CHOW TAI FOOK (01929) target price to HK$17.6, reiterate "buy" rating

Bank of America Securities released a research report stating that it has slightly raised the target price of CHOW TAI FOOK (01929) from the original 17.5 Hong Kong dollars to 17.6 Hong Kong dollars, equivalent to a forecasted price-to-earnings ratio of 20 times for the 2027 fiscal year. The "buy" rating was reiterated, with the rationale that the continued improvement in same-store sales growth may support a revaluation of the valuation. CHOW TAI FOOK's net profit for the first half of the fiscal year ending in September 2026 was 25 billion yuan, roughly flat compared to the same period last year, meeting the bank's expectations; revenue was 39 billion yuan, down 1% year-on-year, 3% lower than the bank's expectations; the gross margin for the first half of the fiscal year was 30.5%, lower than the bank's expected 31.3%, but partially offset by the decrease in the sales, general, and administrative expenses ratio to 14%, which was lower than the bank's expected 15.3%. Management raised the full-year gross margin guidance for the fiscal year ending in March 2026 to between 31% and 32%, indicating a year-on-year increase of 1.5 to 2.5 percentage points, compared to the previous expectation of a year-on-year decrease of 0.8 to 1.2 percentage points, due to the rising gold prices and increased share of sales from priced products. Management also raised the operating profit margin guidance to between 18% and 19%, indicating a year-on-year increase of 1.6 to 2.6 percentage points, compared to the previous expectation of a year-on-year decrease of 0.6 to 1 percentage point. The bank stated that due to better-than-expected sales trends and margin guidance from October to mid-November, CHOW TAI FOOK's net profit forecasts for the 2026 and 2027 fiscal years have been raised by 6% and 1%, respectively, to 8.7 billion and 8.8 billion yuan. Bank of America Securities believes that CHOW TAI FOOK's management's guidance on same-store sales growth is slightly conservative, with room for upward revision; it also believes that the worst period of decline in same-store sales growth is behind. Measures to drive business transformation may support profit recovery.