Chow Tai Fook Jewellery Group (1929) H1 2014 earnings summary

Executive summary

• H1 FY2014 revenue rose 48.5% YoY to HKD 37.8B, while net profit attributable to shareholders increased 90.4% to HKD 3.6B.

• Same-store sales grew 33.2%; the retail network reached 1,954 POS after 118 net openings.

Financial highlights

• Revenue growth reflected stronger gold product sales and improved wholesale business; gross profit grew in line with revenue.

• EBIT rose 72.6% YoY; reported gross margin was flat at 26.4%, while reported operating profit margin rose 160 bps to 12%.

• Basic EPS was HKD 0.351, up 92.3% YoY; net profit margin improved to 9.4% from 7.4%.

• Inventories were HKD 35.6B at September-end, up 30.4% from March; cash and bank balances were HKD 9.8B, up 18.5%.

Outlook and guidance

• Expected continued steady growth in the remainder of FY2014; mass jewelry to remain the key same-store sales growth driver.

• Full-year inventory turnover target was 210–220 days; procurement to prioritize fast-moving affordable luxury and remain conservative on high-end items.

• FY2014 CapEx was expected at HKD 1.5B; positive free cash flow was expected for the full year.

• China’s medium- to long-term growth potential viewed positively, with further penetration of lower-tier cities through franchisee networks.