Citigroup: Lower LUK FOOK HOLD (00590) target price to HKD 32.8, profit margin outlook may weaken.

Citigroup released a research report stating that it has lowered LUK FOOK HOLD (00590) net profit for the fiscal years 2026 to 2028 (ending in March of each year) by 13%, 9%, and 7%, respectively, and has reduced the target price from 35.2 Hong Kong dollars to 32.8 Hong Kong dollars. Based on the relatively low valuation, the "buy" rating is maintained. Citigroup also pointed out that CHOW TAI FOOK (01929) should have similar profit margin outlook, but compared to Luk Fook, its exposure to the strong Hong Kong market is lower, putting it in a less favorable position. Citigroup's investment preference ranking is LAOPU GOLD (06181) > Luk Fook > CHOW TAI FOOK. Although LUK FOOK HOLD's sales in the mainland China market have slowed down, it is expected that same-store sales growth in the first two months of the year, including self-operated stores and authorized stores in mainland China, will remain relatively stable. However, driven by the strong investment demand for gold and passenger volume in Hong Kong, Macau, and overseas markets, the group's same-store sales growth will accelerate in the first two months of this year. Although investment-type gold sales may dilute the gross profit margin, this impact may be offset by a faster rise in gold prices. In other words, with the expectation of a strong gold price, there may be an increase in hedging losses in the second half of the year, which could further slow down the upward trend in gold prices, thus dampening future gross profit margins.