HAITONG INT'L has given LUK FOOK HOLD (00590) a "outperform" rating with a target price of 40.35 Hong Kong dollars.

HAITONG INT'L released a research report stating that they have given LUK FOOK HOLD (00590) a "outperform" rating. They predict that the net profit attributable to the parent company for the fiscal years 2026-2028 will be 15.78/18.00/19.77 billion Hong Kong dollars. Based on the valuation of comparable companies, they have given a 15 times PE ratio for the fiscal year 2026, with a target price of 40.35 Hong Kong dollars. The group's revenue for FY26H1 was 6.843 billion Hong Kong dollars, a year-on-year increase of 25.6%, gross profit was 2.373 billion Hong Kong dollars, a year-on-year increase of 33.2%, and gross margin was 34.7%, a year-on-year increase of 2.0 percentage points; operating profit was 780 million Hong Kong dollars, a year-on-year increase of 45.4%, and operating profit margin was 11.4%, a year-on-year increase of 1.6 percentage points; net profit attributable to the parent company was 619 million Hong Kong dollars, a year-on-year increase of 42.5%, with a net profit margin of 8.8%, a year-on-year increase of 1.1 percentage points. The interim dividend is 0.55 Hong Kong dollars per share, with a dividend payout ratio of 52%. Key points from HAITONG INT'L: Improvement in mainland same store sales, accelerating overseas market expansion 1) Same store sales: Overall same store sales for FY26H1 increased by 7.7% year-on-year. By category, the same store sales of weighted gold and platinum increased by 2.7% year-on-year, and the same store sales of priced jewelry increased by 22.2% year-on-year. By region, same store sales in Hong Kong, Macau, and overseas increased by 7.2% year-on-year, and same store sales in mainland China increased by 10.9% year-on-year. From October 1 to November 21, same store sales in Hong Kong, Macau, overseas, and mainland China all experienced double-digit growth, with noticeable improvement in the mainland China market compared to FY26Q2. 2) Number of stores: As of FY26H1, the total number of global stores was 3,113, with a net decrease of 174 stores in FY26H1. Among them, there were 310 self-operated stores, a net increase of 23 stores, 2,785 branded stores, a net decrease of 198 stores, and 18 specialty stores, a net increase of 1 store. The company plans to open 20 new stores overseas in FY26, and within the next three years from FY26 to FY28, they plan to enter at least 3 new countries and open 50 new overseas stores. Increase in gold price and proportion of priced jewelry driving gross margin improvement, cost optimization The gross profit margin for FY26H1 was 34.7%, an increase of 2.0 percentage points year-on-year, benefiting from the rise in gold prices and increase in the proportion of priced jewelry: Sales revenue for weighted gold and platinum in FY26H1 was 4.096 billion Hong Kong dollars, an increase of 11.0% year-on-year, with a gross profit margin of 30.3%, an increase of 2.8 percentage points year-on-year; sales revenue for priced jewelry was 2.276 billion Hong Kong dollars, an increase of 67.9% year-on-year, with a gross profit margin of 36.8%, a decrease of 0.5 percentage points year-on-year. The share of wholesale income driven by new products such as diamonds significantly increased. Other losses accounted for 5.6% of revenue, an increase of 3.1 percentage points year-on-year, due to the increase in gold prices leading to unrealized losses from gold loans; selling expenses ratio was 16.3%, a decrease of 1.5 percentage points year-on-year, and administrative expenses ratio was 2.7%, a decrease of 0.8 percentage points year-on-year, benefiting from operating leverage. Risk factors: Fluctuations in gold prices affecting sales, store opening falling short of expectations, significant decline in same store sales, etc.