Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

Equity Bottom-Up

Luk Fook Holdings Intl / Equity Bottom-Up

<ul>
<li>March Same-Store sales in China disappoint mainly due to diamond jewellery demand</li>
<li>Overall, gold demand in China continues to rise both in the retail and the official sector</li>
<li>Visitor arrivals to Hong Kong pick up but are still ~40% below pre-Covid levels.</li>
</ul>


March Same-Store sales in China disappoint mainly due to diamond jewellery demand
Overall, gold demand in China continues to rise both in the retail and the official sector
Visitor arrivals to Hong Kong pick up but are still ~40% below pre-Covid levels.


HK/China Equity Long-Short

Osbert Tang, CFA

Chow Tai Fook Jewellery / Equity Bottom-Up

<ul>
<li>The market's assumption of no special dividends in <a href="https://www.smartkarma.com/entities/chow-tai-fook-jewellery-group" target="_blank" data-smartkarma-citation="entities:549:1" rel="noopener">Chow Tai Fook Jewellery (1929 HK)</a>'s upcoming FY24 result is conservative, and this does not fit into its usual pattern. </li>
<li>Should it pay special DPS, the dividend yield may reach an attractive 10.7%. With its net cash position, CTF can financially maintain the average 135.6% payout ratio. </li>
<li>A return to its historical average dividend yield of 7.4% means that CTF's share price will need to go up by 45% from the current level.</li>
</ul>


The market's assumption of no special dividends in Chow Tai Fook Jewellery (1929 HK)'s upcoming FY24 result is conservative, and this does not fit into its usual pattern. 
Should it pay special DPS, the dividend yield may reach an attractive 10.7%. With its net cash position, CTF can financially maintain the average 135.6% payout ratio. 
A return to its historical average dividend yield of 7.4% means that CTF's share price will need to go up by 45% from the current level.


Chow Tai Fook (1929 HK): What if Special Dividends Are Declared?

Thematic (Sector/Industry)

<ul>
<li>There is an increasing likelihood that the duty-free quota of mainland tourists visiting Hong Kong will rise to Rmb30,000 from Rmb5,000. This will benefit many retail-related sectors.</li>
<li>
<a href="https://www.smartkarma.com/entities/luk-fook-holdings-intl-ltd" target="_blank" data-smartkarma-citation="entities:19054:1" rel="noopener">Luk Fook Holdings (590 HK)</a> is the best play among jewellery retailers given it has 65% of revenue from Hong Kong. <a href="https://www.smartkarma.com/entities/sa-sa-international-hldgs" target="_blank" data-smartkarma-citation="entities:20143:1" rel="noopener">Sa Sa International (178 HK)</a> is the cosmetics play.</li>
<li>Property investors including <a href="https://www.smartkarma.com/entities/wharf-holdings-ltd" target="_blank" data-smartkarma-citation="entities:51:1" rel="noopener">Wharf Holdings (4 HK)</a> and <a href="https://www.smartkarma.com/entities/hysan-development-co" target="_blank" data-smartkarma-citation="entities:14169:1" rel="noopener">Hysan Development Co (14 HK)</a> will gain from the shopping malls in major tourist areas in Hong Kong.</li>
</ul>


There is an increasing likelihood that the duty-free quota of mainland tourists visiting Hong Kong will rise to Rmb30,000 from Rmb5,000. This will benefit many retail-related sectors.

Luk Fook Holdings (590 HK) is the best play among jewellery retailers given it has 65% of revenue from Hong Kong. Sa Sa International (178 HK) is the cosmetics play.
Property investors including Wharf Holdings (4 HK) and Hysan Development Co (14 HK) will gain from the shopping malls in major tourist areas in Hong Kong.


Increasing HK Duty Free Quota: The Beneficaries

China Tourism Group Duty Free / Equity Bottom-Up

<ul>
<li>Our earnings projections for <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corporation-limited" target="_blank" data-smartkarma-citation="entities:36229:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (1880 HK)</a> are 14% and 18% below market consensus respectively. We think these are more realistic expectations.</li>
<li>At IPO price of HK$158, CDFC H-share sits on 23.9x FY23F PER. We think it is difficult to trade above 22x - the average for top consumer discretionary names.</li>
<li>Weakened visitor appetite to Sanya, potentially higher discounts, increase in border opening, higher fixed cost and uncertainties for duty free policies beyond 2025 are negative earnings factors.</li>
</ul>


Our earnings projections for China Tourism Group Duty Free Corp Ltd (1880 HK) are 14% and 18% below market consensus respectively. We think these are more realistic expectations.
At IPO price of HK$158, CDFC H-share sits on 23.9x FY23F PER. We think it is difficult to trade above 22x - the average for top consumer discretionary names.
Weakened visitor appetite to Sanya, potentially higher discounts, increase in border opening, higher fixed cost and uncertainties for duty free policies beyond 2025 are negative earnings factors.


CTG Duty Free (1880 HK): Our Earnings Forecasts and Views on H-Share Fair Value

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

<ul>
<li>Chinese Real Estate prices have been the major driver of the Chinese stock market slump, but the fall seemed to stop. </li>
<li>Recently sworn-in President Trump is no longer considered an enemy of China, and his tariff punishment will no longer be across the board but more selective. </li>
<li>A few stocks in Hong Kong listing that trade at lower PE multiples to the dividend yield, indicating the undemanding valuation to obtain yield. </li>
</ul>


Chinese Real Estate prices have been the major driver of the Chinese stock market slump, but the fall seemed to stop. 
Recently sworn-in President Trump is no longer considered an enemy of China, and his tariff punishment will no longer be across the board but more selective. 
A few stocks in Hong Kong listing that trade at lower PE multiples to the dividend yield, indicating the undemanding valuation to obtain yield. 


Hong Kong

Luk Fook Holdings (International) Limited retails jewellery. The Company engages in the sourcing, designing, wholesaling and retailing of a variety of platinum and gold jewellery, gold ornaments, gem-set jewellery, natural jadeites, gemstones, and other related products. Luk Fook offers its products in Hong Kong, Mainland China, Macau, Singapore, the United States and Canada.

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Luk Fook Holdings Intl (590 HK)

Luk Fook 590.HK – Losing Its Shine?

Despite temporary hiccups, the company is geared to the rising trends of rising gold prices and demand by Chinese consumers. Sales are at a pre...

Rikki Malik

Chow Tai Fook (1929 HK): What if Special Dividends Are Declared?

The market's assumption of no special dividends for CTF's FY24 result may be off - potential for an attractive 10.7% yield. The share price could...

Osbert Tang, CFA

Increasing HK Duty Free Quota: The Beneficaries

Potential increase in duty-free quota for mainland visitors to Hong Kong to benefit retail sectors, with Luk Fook as the top jewellery play, Sa Sa...

Osbert Tang, CFA

China: Revival 2.0?

Chinese real estate prices impact stock market, Trump's tariff approach to China changes, undervalued stocks in Hong Kong offer high yield potential.

Henry Soediarko

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Luk Fook 590.HK – Losing Its Shine?

Despite temporary hiccups, the company is geared to the rising trends of rising gold prices and demand by Chinese consumers. Sales are at a pre...

Rikki Malik

Chow Tai Fook (1929 HK): What if Special Dividends Are Declared?

​The market's assumption of no special dividends for CTF's FY24 result may be off - potential for an attractive 10.7% yield. The share price could...

Osbert Tang, CFA

Increasing HK Duty Free Quota: The Beneficaries

​Potential increase in duty-free quota for mainland visitors to Hong Kong to benefit retail sectors, with Luk Fook as the top jewellery play, Sa Sa...

Osbert Tang, CFA

CTG Duty Free (1880 HK): Our Earnings Forecasts and Views on H-Share Fair Value

CDFC's H-share lPO is priced too high relative to fair value based on our earnings forecasts. There are potentially better entry levels when the...

Osbert Tang, CFA

China: Revival 2.0?

​Chinese real estate prices impact stock market, Trump's tariff approach to China changes, undervalued stocks in Hong Kong offer high yield potential.

Henry Soediarko

The market's assumption of no special dividends for CTF's FY24 result may be off - potential for an attractive 10.7% yield. The share price could...

Potential increase in duty-free quota for mainland visitors to Hong Kong to benefit retail sectors, with Luk Fook as the top jewellery play, Sa Sa...

Chinese real estate prices impact stock market, Trump's tariff approach to China changes, undervalued stocks in Hong Kong offer high yield potential.