Chow Tai Fook Rises After Company Declares Surprise Dividend

Updated on
  • Special dividend of 42 H.K. cents first since IPO in 2011
  • Chairman says jeweler to shut stores that don't perform well

Pedestrians walk past a Chow Tai Fook jewelry store in Causeway Bay, Hong Kong.

Photographer: Xaume Olleros/Bloomberg

Chow Tai Fook Jewellery Group Ltd. gained the most in close to two years after the world’s largest publicly traded jewelry chain declared a special dividend even as it posted the steepest decline in semi-annual profit since listing.

The stock climbed 6 percent to HK$6.23 by the close of trading in Hong Kong, the biggest advance since January 2014. The benchmark Hang Seng Index lost 0.4 percent.

The company said Tuesday it will pay a special dividend of 42 Hong Kong cents per share, the first since it went public in 2011, in order to return excess cash to shareholders. Net income fell 42 percent to HK$1.56 billion ($201 million) for the six months ended September, the jeweler said Tuesday, in line with its profit warning issued Nov. 10.

The special dividend is only “a short-term stimulus because the share price still depends on the long term earnings outlook,” while Hong Kong’s retail outlook remained challenging as mainland visitors’ purchasing power has declined, Albert Yip, an analyst at Guangfa Securities Co. said.

Chow Tai Fook’s shares have plummeted 41 percent year to date, compared with the 4.7 percent decline in the benchmark Hang Seng Index, as China’s economic slowdown hurt luxury retailers. The company is also proposing an interim dividend of 8 Hong Kong cents per share.

Earnings Stabilizing

Capital expenditure for the fiscal year to March 2016 is expected to fall to less than HK$1.5 billion, from its previous forecast of HK$2 billion, Finance Director Hamilton Cheng said in Hong Kong after the results were announced. The chain plans to open about 60 stores in the period, and won’t attempt to meet its target of adding 150 to 200 new stores each fiscal year, he added.

“We expect its fundamentals to remain weak in the second half of 2016, but see earnings stabilizing next year,” Jefferies Group LLC analysts led by Kevin Chee wrote in a report.

China Focus

The chain will shut outlets that do not perform well, but doesn’t plan to lay off workers, said Chairman Henry Cheng. “The retail market is soft now, but I think it’s just short-term. I don’t have any plans on expanding overseas,” he said, adding it will instead focus on the Hong Kong, Macau and mainland China businesses. The company last year said it’ll explore other markets as it follows Chinese customers traveling overseas.

Chow Tai Fook reported sales in the six months through September fell 4.1 percent to HK$28.1 billion, while same store sales, referring to outlets open at least a year, slumped 18 percent in Hong Kong and Macau. Same store sales in mainland China rose 0.1 percent.

Chow Tai Fook’s retail network expanded to 2,286 points of sales as of end-September, with a net addition of 29 during the period, it said Tuesday.

About one-third of the chain’s Hong Kong stores renew their lease agreements each year, and the company may request rental reductions for those outlets of 30 percent on average, or more in some cases, Hamilton Cheng said.

The company had shut three outlets in Hong Kong in the six months to September, and may “make adjustments” to as many as eight outlets in the city in the latter half of the fiscal year, he added.

— With assistance by Kana Nishizawa

(Adds closing share price in second paragraph.)
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