[ET Net News Agency, 19 September 2019] Citi Research estimated that HK market accounts
for about 20% of Chow Tai Fook Jewellery's (CTF)(01929) operating profit (OP) in FY2019,
and it also expects HK operation to maintain profitable in FY2020 despite potential -27%
SSSG in its model.
Therefore, the research house expects the earnings drag from HK operation to be
manageable, and group earnings decline to be at a single digit in FY2020, given mainland
China's growth.
In the worst case of a structural downturn in HK, Citi thinks store closure and
inventory destocking could help release cash for the potential dividend payout. It expects
HK to be less relevant to CTF over time (20%+ of revenue and 10%+ of OP in FY2020), and
the China growth outlook to remain solid given CTF's strengthening product capability and
accelerating store penetration.
Citi maintained its "buy" rating on CTF, with a target price of HK$9.4. (KL)