Guosen Securities has published a research report reiterating an "Outperform" rating on Chow Tai Fook (01929). Given a further increase in the proportion of high-margin priced jewelry products, the firm has raised its forecasts for Chow Tai Fook's net profit attributable to owners for fiscal years 2026-2028 to HK$8.637 billion, HK$9.646 billion, and HK$10.559 billion, respectively (previous forecasts were HK$7.785 billion, HK$8.711 billion, and HK$9.543 billion). This corresponds to price-to-earnings (P/E) ratios of 15.7x, 14x, and 12.8x, respectively. The main points from Guosen Securities' report are as follows.

Recent company events include the release of unaudited key operational data for October-December 2025, which showed overall retail sales value growth of 17.8% year-on-year. This represents a significant acceleration of 13.7 percentage points compared to the 4.1% growth seen in July-September. Retail sales value in Mainland China grew by 16.9%, while the Hong Kong, Macau, and other markets saw growth of 22.9%.

Regarding retail performance, comparable store sales in Mainland China's self-operated stores grew by 21.4%, accelerating by 13.8 percentage points from the July-September period. Franchised stores' comparable sales grew by 26.3%, accelerating by 17.7 percentage points. In the Hong Kong and Macau markets, comparable store sales grew by 14.3%, an acceleration of 8.1 percentage points from the previous quarter.

In terms of product mix, high-margin priced jewelry continued to lead growth. In Mainland China, the retail sales value of the priced jewelry category surged 59.6% year-on-year, with its contribution to total retail value reaching 40.1%, an increase of 10.7 percentage points year-on-year.

On the store front, the company continues to execute its strategy of strengthening per-store efficiency. During the quarter, it recorded a net closure of 228 stores, bringing the total store count to 5,813 by the end of the period. However, it is anticipated that the pace of store closures will narrow starting in fiscal year 2027, with expansion in overseas markets expected to provide incremental contributions.

Amid a backdrop of sustained gold price increases, the company has capitalized on the growth opportunities in priced gold jewelry through product innovation and optimization of its channel positioning, making this the core driver of comparable store sales growth. Furthermore, gold products sold by weight also performed well, benefiting from the release of pent-up demand and the year-end peak season.

Looking ahead, the company will continue to invest in research, development, and design to strengthen its portfolio of high-margin priced products. On the channel side, it will optimize its store mix and introduce stores with new concepts to boost per-store sales, aiming to achieve sustained earnings growth.

Potential risks include a slower-than-expected recovery in consumer spending, store expansion falling short of targets, operational mismanagement by franchisees, significant fluctuations in gold prices, and new product launches underperforming expectations.