Luk Fook Holdings (International) (0590) H1 2021 earnings summary

Executive summary

• H1 FY2021 results reflected COVID-19 disruption and higher gold prices: revenue fell 47% to HKD 3.3bn; operating profit declined 41.4% to HKD 387m.

• Mainland operations proved more resilient than Hong Kong, Macau and overseas markets; management prioritized mainland expansion, e-commerce and supply-chain efficiency.

Financial highlights

• Profit attributable to equity holders fell 41.3% to HKD 291m; basic EPS decreased 41.2% to HKD 0.50.

• Gross profit declined 41.2% to HKD 1.1bn, less than the 47% revenue decline; gross margin rose 3.3 percentage points to 33.2%, mainly on higher gold prices.

• Operating profit margin increased 1.1 percentage points to 11.6%; net margin rose 0.9 points to 8.8%.

• Other income rose HKD 89m, including HKD 58m in Hong Kong salary subsidies and HKD 25m in mainland VAT refunds and other government subsidies; no HKD 56m CGU impairment recurred, unlike prior-year H1.

Outlook and guidance

• H2 profitability expected to exceed H1; management anticipated mainland same-store sales growth in Oct–Dec 2020 and positive Hong Kong and Macau same-store sales in Jan–Mar 2021, subject to pandemic developments.

• Full-year rental costs expected to decline at least 20%; H1 rental-related expenses fell 38.3% YoY, while H1 landlord concessions of HKD 50m were expected to be much lower in H2.

• FY2021 mainland targets: net additions of 250 Luk Fook shops and 50 new-brand stores, mainly licensed; e-commerce revenue growth target 15%.

• Management expected gross margin on fixed-price jewelry to improve in H2 as retail performance gradually recovered; normal gross margin for gem-set jewelry was described as above 30%.