CICC has issued a research report, maintaining its Outperform rating on LUK FOOK HOLD (ASX: 00590) with a target price of HK$34.31, implying a potential upside of 57%. The target is based on 9 times FY27 and 8 times FY28 price-to-earnings ratios, reflecting a downward adjustment in sector valuations.

The firm has raised its FY27 earnings per share forecast by 23% to HK$3.84 and introduced an FY28 EPS estimate of HK$4.23, citing the company's robust gross profit margins and operating leverage. The current share price corresponds to approximately 6 times FY27 and 5 times FY28 P/E.

FY26 Results Align with Market Expectations

The company's FY26 results met market expectations. Revenue increased by 29% year-on-year to HK$17.2 billion, while attributable net profit surged 86% to HK$2.0 billion. A final dividend of HK$1.02 per share was proposed, bringing the full-year payout ratio to 45% and the dividend yield above 7%.

Strong Mainland Wholesale and Robust Retail Growth in Greater China & Overseas

Second-half FY26 revenue grew 31% year-on-year, accelerating from the first half. By region, mainland China revenue rose 33% in 2HFY26. Wholesale revenue jumped 79%, driven by a richer product mix and strong sales of new items, while retail and brand business revenue increased by 18% and 4%, respectively. The company continued optimizing its mainland channel network, adding 23 self-operated stores and reducing 140 branded stores.

Revenue from Hong Kong, Macau, and overseas markets grew 30% in 2HFY26. Retail revenue increased 31%, benefiting from product price differentials and recovering customer traffic. Wholesale and brand revenue changed by -2% and +45% year-on-year, respectively, with a net addition of 12 stores during the period.

By product category, revenue from priced jewelry, the primary growth driver, rose 40% to HK$3.2 billion. Revenue from gold and platinum products increased 30% to HK$6.7 billion.

Record Gross Margin Driven by Gold Price and Product Mix

The gross profit margin for 2HFY26 improved significantly by 4.6 percentage points year-on-year to 38%, primarily due to rising gold prices and a higher proportion of high-margin priced products. Operating leverage and rental optimizations drove the selling expense ratio down by 2.4 percentage points, while the administrative expense ratio remained largely stable. Other income was HK$60 million, offset by gold hedging losses of HK$430 million (compared to HK$260 million in 2HFY25). Attributable net profit for the half surged 114% to HK$1.4 billion.

Accelerated Overseas Expansion

The company is actively advancing its overseas layout. With a net increase of 20 overseas stores in FY26 and plans for a net addition of 30 overseas stores in FY27, including entry into new markets like the UK and Singapore, it is expected to achieve its three-year overseas store expansion target ahead of schedule in FY27.

Future Outlook

From April 1 to June 21, 2026, the group's overall same-store sales continued strong growth, with mainland China same-store sales growing over 20% and Greater China & overseas markets same-store sales growing over 40%. The company targets double-digit growth in both revenue and profit for FY27.

Key Risks

Potential risks include intensifying industry competition and retail performance falling short of expectations.