Luk Fook Holdings (International) (0590) H1 2025 earnings summary

Executive summary

• Revenue for 1H FY2025 declined 27.2% year-over-year to HK$5,449M, mainly due to record-high gold prices, macroeconomic uncertainties, and weak consumer sentiment, despite an improved gross margin.

• Net profit attributable to equity holders dropped 53.9% to HK$434M, with basic EPS down 54.0% to HK$0.74; interim dividend per share was HK$0.55, with a payout ratio of 74%.

• Gold hedging losses of HK$230M (vs. HK$55M gain last year) significantly impacted profit; adjusted profit excluding hedging was HK$647M, down 27.1%.

• Worldwide shop count decreased by 175 to 3,408 as of September 2024, reflecting a net reduction in "Lukfook" shops and an increase in sub-brands.

• Gross margin improved to 32.7% (up 4.9p.p.), but operating margin fell to 9.8% (down 5.4p.p.).

Financial highlights

• Revenue fell 27.2% year-over-year to HK$5,449M; gross profit dropped 14.4% to HK$1,782M, but gross margin improved by 4.9p.p. to 32.7%.

• Operating profit declined 53.0% to HK$536M; adjusted operating profit (ex-hedging) was HK$766M, down 29.4%.

• EBITDA was HK$836M (down 39.1%); adjusted EBITDA was HK$635M (down 47.4%).

• Net margin decreased to 7.7% (down 4.9p.p.); effective tax rate rose to 20.4%.

• Inventories increased 4.5% year-over-year to HK$9,863M; cash and bank balances fell 14.2% to HK$1,934M.

Outlook and guidance

• Same store sales declines narrowed since September, with improvements seen from October to mid-November 2024.

• Management expects gold product sales to normalize as consumers adapt to high prices and remains cautiously optimistic about mid- to long-term prospects, especially in Mainland and overseas markets.

• Focus remains on Mainland market expansion, especially licensed shops in lower-tier cities, and plans to add about 15 net new shops overseas in the current financial year.

• FY2025 CAPEX budget is HK$95M, with HK$60M for shop renovation and HK$20M for plant upgrades.

• Strategies emphasize operational efficiency, branding, and sustainable growth, with a multi-brand and digital focus.