DBS: Luk Fook Holdings International Ltd – Buy TP HK$30.01
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<News Alert> Luk Fook – 1Q FY23 Operating Data broadly in line
Luk Fook saw overall same-store sales growth (SSSG) of -1% in 1Q FY23 (i.e., Apr-Jun 2022) despite a high base and COVID-19 resurgence.
Latest SSSG for 1-7 Jul 2022 scored +116% SSSG in HK, more than offsetting -76% SSSG in Macau amid the city’s latest COVID-19 outbreak. Mainland China scored low double-digit growth in overall revenue during the same period.
In view of a firm momentum in FY23 so far and ample room for expansion in Mainland China ahead, we maintain BUY with TP of HK$30.
More details on Luk Fook’s performance in 1Q FY23 and 1st week of Jul 2022 as follows:-
Luk Fook’s operating data for 1Q FY23 (i.e., Apr-Jun 2022) saw overall y-o-y SSSG of -1% (4Q FY22: -8%), despite a high base of +118% SSSG for the same quarter a year ago, and the COVID-19 resurgence.
In 1Q FY23, overall SSSG for gold products reached +9% (4Q FY22: -6%), and for fixed price jewelleries was a -19% (4Q FY22: -13%).
HK/Macau scored SSSG of +2% during 1Q FY23 (4Q FY22: -17%), driven by SSSG of +15% for gold products (4Q FY22: -17%) and -21% for fixed price jewelleries (4Q FY22: -18%). Retail revenue edged down by 1% in the same quarter (4Q FY22: -22%).
In HK alone, improving pandemic control and this year’s Government Consumption Vouchers (Phase l) starting in Apr 2022 had all contributed to +40% SSSG, mainly attributable to a +54% SSSG for gold products, plus double-digit SSSG for most other jewelleries including diamond products. On the other hand, Macau SSSG was -43% in 1Q FY23 amid COVID-19 resurgence in Mainland China that affected tourist arrivals.
Mainland China saw SSSG of -28% during 1Q FY23 for its self-operated stores (4Q FY22: +5%) amid COVID-19 resurgence and lockdowns in selected cities (e.g., Shanghai), driven by SSSG of -26% for gold products (4Q FY22: +12%) and -34% for fixed price jewelleries (4Q FY22: -14%). E-commerce grew +30% though (4Q FY22: +50%), along with +38% SSSG for gold products (4Q FY22: +55%) and -3% SSSG for fixed price jewelleries (4Q FY22: +34%). Total retail revenue in Mainland China dropped by 5% in the same quarter (4Q FY22: +24%).
Licensed stores, which represented 97% of total store count in Mainland China, saw -15% SSSG in 1Q FY23, of which SSSG for gold products was -13% and for fixed price jewelleries was -20%. Specifically, SSSG was -36% for April, -13% for May, and +3% for June, revealing sound sequential improvement throughout the quarter.
Latest SSSG in 1-7 Jul 2022 rose strongly by +116% in HK, including a +161% SSSG of gold products along with rising demand caused by the decline in gold prices. Fixed jewelleries also registered double-digit growth. Nevertheless, Macau saw -76% SSSG in the same period given its COVID-19 outbreak and stringent anti-pandemic measures. Mainland China saw narrowed SSSG decline of -11% for self-operated stores and a slight positive SSSG for licensed stores during 1-7 Jul 2022; together with a firm e-commerce performance and store expansion generated a low double-digit revenue growth.
In terms of store expansion, Mainland China saw a net addition of +36 store in 1Q FY23 (self-operated: -4; licensed: +40), making a total of 2,772 stores as of Jun 2022. Coupled with its stores in HK/Macau and overseas, the overall number reached 2,845 stores. Luk Fook’s target of a net addition of 500 “Luk Fook” stores and 50 shops of its sub-brands in Mainland China for full year of FY23 remains intact.
