Morningstar: First coverage of CHOW TAI FOOK (01929) with fair value of HK$14.5 per share.

Morningstar has released a research report initiating coverage on CHOW TAI FOOK (01929), assigning a "Narrow Moat" and "High Uncertainty" rating, with a fair value estimate of HK$14.5 per share. It believes the stock is undervalued, as the market has not yet fully recognized the long-term revenue growth driven by fixed-price jewelry sales. The "Narrow Moat" rating stems from the company's strong brand recognition, innovative product designs, and extensive sales network, which support the pricing premium of its jewelry products. The report describes CHOW TAI FOOK as the largest gold jewelry manufacturer and retailer in Greater China. Benefiting from CHOW TAI FOOK's attractive product designs and growing demand from younger consumers, the revenue share of its priced jewelry rose from approximately 25% in FY2021 (ending March) to 35% in FY2026. The bank expects that over the next decade, CHOW TAI FOOK will continue to rank among China's leading gold jewelry retailers. It anticipates that its exquisite jewelry craftsmanship, combined with shifting preferences among younger consumers and gradually rising gold prices, will lift the revenue share of fixed-price products to 45% by FY2031. This shift is the primary DRIVE behind the bank's forecast of a 5% revenue CAGR over the next five years. In the longer term, the bank expects the operating margin to reach 13% by FY2031, slightly up from 12.7% in FY2026, attributable to rising gold prices and a revenue mix shift toward higher-margin priced products. Although a decline in gold prices could pressure CHOW TAI FOOK's profitability, it believes tighter cost controls should provide a buffer.