Analysts at CLSA have issued a report maintaining a "Hold" rating on CHOW TAI FOOK (HKG: 01929). While the firm acknowledges the company's efforts in enhancing retail execution and its focus on priced gold products, which accounted for 35.4% of FY2026 sales, several headwinds are noted. Persistent softness in gold prices could pressure both sales volume and product mix, thereby impacting overall sales and gross margins. Visibility into same-store sales growth in the Mainland China market remains low, and the market faces intense competitive risks.

Revised Financial Forecasts and Valuation

In light of downside risks to FY2026 earnings and gross margins, CLSA has lowered its net profit forecasts for FY2027 and FY2028 by 2% to 4%. Consequently, the target price has been reduced from HK$11.2 to HK$10.7, which implies a forward 12-month price-to-earnings ratio of 10 times.

Recent Performance and Mixed Outlook

CHOW TAI FOOK's results for the second half of FY2026, ending March this year, were in line with expectations, and trading performance from April to May was described as encouraging. However, guidance for FY2027, ending March next year, is mixed. Strong revenue growth expectations are anticipated to be offset by margin pressure stemming from gold price volatility.

Key Assumptions for the Coming Year

CLSA's FY2027 forecast incorporates a slower pace of net store closures to approximately 500 outlets. It also assumes same-store sales growth of 8% for self-operated stores and 18% for franchised stores in Mainland China, driving an overall sales increase of 5% year-on-year.

Based on management's assumption of a gold price of $4,300 per ounce, the analysts project FY2027 gross and operating margins of 26.5% and 14%, respectively. This represents year-on-year declines of 5.8 and 6 percentage points, which aligns with company guidance. After accounting for an estimated HK$5 billion fair value gain on gold financing loans, net profit for FY2027 is forecast to grow 12% year-on-year to HK$100.99 billion.