Morgan Stanley: Weak gold prices may lower CHOW TAI FOOK's gross profit margin and operating profit margin. Target price is 19 Hong Kong dollars.

Morgan Stanley released a research report stating that it maintains a "hold" rating on CHOW TAI FOOK (01929), with a target price of HKD 19. The most optimistic scenario target price was lowered from HKD 25 to HKD 24, while the most pessimistic scenario was set at HKD 9. The bank lowered its operating profit forecast for CHOW TAI FOOK for the 2027 fiscal year, but expects losses to decrease at lower gold prices, therefore raising the earnings per share forecast by 4% to HKD 1.06, while lowering the earnings per share forecast for the 2028 fiscal year by 4% to HKD 1.07. Morgan Stanley stated that gold prices have fallen from their peak in February this year, releasing pent-up demand for gold jewelry products priced by weight, which account for 60% of the company's sales. Although same-store sales growth in April-May was stronger than expected, products priced by weight are sold at the spot gold price, so a weaker gold price could lower gross margins and operating profit margins.