Citigroup: Luk Fook Holdings (00590) has good sales prospects for the Spring Festival, rated "buy"

Citibank released a research report stating that due to the significant acceleration in the growth of fixed-price gold products, LUK FOOK HOLD (00590) is expected to benefit from a positive impact on profit margins. It is anticipated that a similar trend will occur, including accelerated same-store sales growth and margin improvement. The stock is rated as "buy" with a target price of HK$35.2. In the third fiscal quarter ending in December last year, LUK FOOK experienced strong growth in same-store sales, with mainland franchise stores increasing by 31% and Hong Kong, Macau, and overseas markets increasing by 16%, meeting the bank's expectations. Although same-store sales at self-operated stores in the mainland grew 7% lower than expected, they only account for about 10% of the group's revenue, so the impact is limited. Furthermore, the group's same-store sales growth from the beginning of this month until the 7th has exceeded expectations for the third fiscal quarter, which the bank believes is a good indication of the upcoming peak season for Lunar New Year sales. Citibank stated that the management of LUK FOOK HOLD mentioned that despite the record high gold prices in December, consumers have gradually adapted to the high price environment, resulting in minimal impact on sales. Management believes that after the implementation of the new gold value-added tax policy in the mainland, the price difference between products in Hong Kong, Macau, and the mainland has widened, coupled with the appreciation of the Renminbi, which is beneficial to the Hong Kong and Macau markets. They also remain optimistic about the huge growth potential in overseas markets and plan to invest more resources for expansion, maintaining their target of adding approximately 20 stores by fiscal year 2026.