Northeast: Chow Tai Fook (01929) receives a "buy" rating, with significant channel optimization results apparent.

Northeast released a research report stating that in the short term, as a leading company in the industry, CHOW TAI FOOK (01929) can reduce cost pressure and mitigate disruptions from the gold value-added tax by leveraging standardized procurement channels and strong brand bargaining power. In the medium to long term, with the acceleration of the internationalization process, the company plans to continue expanding into new markets such as Oceania, Canada, and the Middle East to create a second growth curve for the brand transformation. It is expected that the company will achieve a net profit attributable to the parent of 7.57/8.61/9.73 billion yuan in 2026/2027/2028, corresponding to PE of 15.1/13.3/11.8X. Initial coverage with a "buy" rating. The main points of Northeast are as follows: Steady recovery of FY26 performance In the first half of FY26 (up to September 30, 2025), the company's performance showed a steady recovery, with revenue reaching 38.986 billion Hong Kong dollars, basically flat compared to the same period last year. Benefiting from the improvement in the expense ratio, operating profit increased by 0.7% year-on-year to 6.823 billion Hong Kong dollars, with an operating profit margin of 17.5%, reaching a five-year high. After recognizing a loss of 3.143 billion Hong Kong dollars from gold loan contracts, the net profit attributable to the parent company was 2.534 billion Hong Kong dollars, basically flat year-on-year. Continuous optimization of product structure, growth driven by high-value products (1) In FY26H1, the revenue of priced jewelry increased by 9.3% year-on-year to 11.39 billion Hong Kong dollars, accounting for 29% of total revenue, an increase of 3% year-on-year, effectively supporting the overall gross margin level. The same-store sales of priced jewelry and priced gold jewelry in Q1/Q2 were +0.4%/+16.6% and -2.7%/+7.3%, respectively. (2) The total sales of iconic product series represented by "Chuan Fu," "Chuan Xi," and "The Forbidden City" reached 3.4 billion Hong Kong dollars, a significant increase of 47.8% year-on-year, with successful expansion of high-value new products such as "He Mei Dong Fang." (3) The company attracts young customers by collaborating with well-known IPs such as "The Myth of Dark Myth: Wukong" and the NBA, injecting new vitality into the brand. Improvement in store network and channel optimization As of the end of the first half of FY26, there were 5,663 retail outlets in mainland China. With the positive impact of product structure optimization and the rise in gold prices, same-store sales grew by 2.6% during the period. (1) Directly operated stores: Revenue was approximately 10.24 billion Hong Kong dollars during the reporting period, an 8.4% year-on-year increase, accounting for 31.8% of total revenue in mainland China, a 4.5% year-on-year increase. The number of directly operated stores decreased by 16 during the period, with same-store sales of -3.3%/+7.6% in Q1/Q2. (2) Franchised stores: Revenue was approximately 21.96 billion Hong Kong dollars during the period, a 5.5% year-on-year decrease, accounting for 68.2% of total revenue in mainland China, a 4.5% year-on-year decrease. The number of franchised stores decreased by 595 during the period, with same-store sales recording 0%/+8.6% in Q1/Q2. (3) The online channel maintained strong growth, with retail value of mainland China's e-commerce business increasing by 27.6% year-on-year. Risk warning: Risk of gold price fluctuations; overseas expansion pace slower than expected; performance forecasts and valuations fall short of expectations.