Earnings Alert: Luk Fook (590.HK, BUY) – FY22 Final Results in line; sequential improvement through Apr-Jun 2022
- Luk Fook reported FY22 final results for the 12 months ended Mar 2022 and held an investors’ briefing.
- FY22 revenue increased by 32.5% y-o-y to HK$11.7bn, and net earnings rose by 36.9% to HK$1.4bn, in line with earlier profit alert announcement.
- Sitting on over HK$1.5bn net cash, FY22 final basic DPS up 144% to HK$0.55. No special DPS was declared (FY21: HK$0.275 special DPS to celebrate 30th anniversary). Coupled with interim DPS of HK$0.55 (FY21: HK$0.50), full-year DPS reached HK$1.1 (FY21: HK$1.5), at payout of 46% (FY21: 87%).
- Latest same-store sales growth (SSSG) for HK/Macau jumped 40-50% in Apr-May 2022 despite a higher base, mainly attributable to the roll-out of government consumption vouchers and improved control of the 5th wave of COVID-19. SSSG also stayed positive in Jun 2022 and grew moderately. As for Mainland China, both self-operated stores and licensed stores altogether saw a negative SSSG of c.15% in 1Q FY23 (i.e., Apr-Jun 2022) amid impacts from COVID-19 resurgence, although sales momentum recovered to the positive territory by Jun 2022.
- Total capex for FY23 budgeted at c.HK$400m, inclusive of HK$60m for shop renovation, HK$20m for Nansha Plant renovation & new equipment, HK$20m for office renovation & new equipment, and HK$300m for purchase of premises.
- Overall, 443 stores were added in FY22 to reach total store number of 2,809 stores by Mar 2022, including 2,736 in Mainland China, 59 in HK/Macau, and 14 in overseas markets.
- Looking ahead, Luk Fook aims to add c.500 stores each year for the coming 3-5 years, mainly via its licensees. The company sees ample room for expansion given its total store number that is just about half of leading peers’ store numbers.
- Selected licensees believe that a slower China economy so far this year could also offer a lower cost environment, prompting Luk Fook to stick to its store opening plan to add 500 stores for FY23.
- Full-year FY23 targets include an overall SSSG of approximately 15-20% and a stable EBIT margin at low double-digits’ rate. Besides, China’s latest shortening of quarantine time for inbound travellers (from 14+7 days to 7+3 days) could improve consumer mobility to some extent and benefit the group.
- In view of promising performance in HK/Macau during 1Q FY23 and swift sales rebound in Mainland China by Jun 2022, the latest loosening of COVID-19 quarantine measures, and an abundant room for Luk Fook to expand via an asset-light store model, we maintain BUY with target price of HK$30.01.