Chow Tai Fook Climbs on Improving Outlook: Hong Kong Mover

Chow Tai Fook Jewellery Group Ltd. (1929), the world’s largest listed jewelry chain, rose the most in two months in Hong Kong trading after saying it sees signs of improving demand.

Chow Tai Fook jumped 2.3 percent to HK$8.86, the biggest gain since April 19. The city’s Hang Seng Index dropped 1.1 percent.

The jeweler sees “gradual signs” of recovery even as the macro-economic environment remains uncertain, it said in a statement after the market’s close yesterday. Chow Tai Fook expects sales to climb in the “double digits” this fiscal year, Chairman Henry Cheng said on a video conference, beating the 1.5 percent growth in the 12 months ended March 31.

“We expect first quarter to be very strong given a spike in sales following the drop in gold prices in April,” Aaron Fischer, a Hong Kong-based analyst at CLSA Asia-Pacific Markets, wrote in a research note today. The brokerage raised its rating on the stock to buy from outperform, and has a 12-month price estimate of HK$10.80.

Retail sales of gold across China tripled April 15-16 as the metal fell, according to the China Gold Association. Chow Tai Fook outlets had to be restocked over the period because of increased demand, according to the company.

The jeweler’s nine factories produced about 1.2 million pieces of pure gold products in April, double the monthly average of 600,000, it said. About 57 percent of the company’s revenue came from gold products in the year ended March 31, according to data compiled by Bloomberg.

Profit Decline

Net income fell 13 percent to HK$5.51 billion ($710 million) in the year ended March because of higher costs and weaker consumer spending, Chow Tai Fook said yesterday. That missed the HK$5.57 billion average of 25 analyst estimates compiled by Bloomberg.

Sales rose 1.5 percent to HK$57.4 billion, coming under pressure from “declining confidence of domestic consumers,” and slower economic growth, the company said. China’s economy expanded 7.7 percent in the first quarter, easing from 8.1 percent growth a year earlier.

“It’s not unrealistic to expect our compound annual sales growth to be more than 20 percent for the next three years,” Cheng said on the video conference from Beijing. “We’ve seen signs of a recovery and we’ll have a lower base year.”

Chow Tai Fook’s selling, distribution and administrative expenses increased to HK$9.2 billion from about HK$8 billion a year earlier as it opened more shops. The company said it expects capital expenditure to increase 42 percent to HK$1.1 billion in the 12 months ending March 31.

The jeweler plans to add 200 outlets this year, Managing Director Kent Wong said at a briefing in Hong Kong yesterday. It aims to have 2,000 stores by the end of 2014, an increase from 1,731 outlets as of March 31.

Shares of the company, founded by Chow Chi Yuen in 1929 in the southern Chinese city of Guangzhou, have lost 28 percent this year, compared with a 7.4 percent drop for the Hang Seng Index. “Tai Fook” means “big blessing” in Chinese.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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