DBS: Luk Fook Holdings International Ltd – Buy TP HK$30.01
alanyeo
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.
