Chow Tai Fook FY26 Net Profit Forecast +45-55% Beats Expectations; Maintain Neutral Rating

Overview

Goldman Sachs releases Chow Tai Fook Jewellery Group (1929.HK) earnings review report. Chow Tai Fook released FY26 earnings preview after market close on May 6, 2026, expecting Net Profit to grow YoY approx 45-55% to 86-92 billion HKD, exceeding Goldman Sachs' prior forecast of 85 billion HKD. Goldman Sachs believes solid earnings growth mainly attributed to gross margin improvement (benefited from gold price rise, favorable retail business and fixed-price product sales mix) and operating leverage effect brought by strict cost control. Although performance beats expectations and recent Labor Day channel checks show strong same-store sales, given gold price volatility, investors will focus more on company's FY27 growth prospects and margin visibility. Goldman Sachs maintains neutral rating on Chow Tai Fook, target price 13 HKD.

Core views

Earnings Beat Drivers: Chow Tai Fook FY26 Net Profit expected 86-92 billion HKD, 1%-8% higher than Goldman Sachs expectation (2nd half 2nd-12% higher than estimate). Assuming revenue consistent with Goldman Sachs expectations (FY26 YoY growth 2%), net margin 0.2-0.8 pp higher than expected. Mainly due to OPM higher than expected, behind reasons being gold price rise (FY26 YoY rise approx 50%) boosted gross margin of goods priced per gram, simultaneously promoted increase in share of high-margin fixed-price products. In addition, strict cost control also played role in operating leverage. Market Sentiment and Future Focus: Goldman Sachs expects FY26 earnings beat and recent Labor Day period recorded mid-to-high teens percent same-store sales growth (SSSG), will help boost stock market sentiment. However, along with recent gold price volatility, investor debate focus shifted to FY27 same-store sales/margin visibility and durability of fixed-price product demand, which will directly affect company's gross margin performance. Valuation and Rating: Goldman Sachs maintains Chow Tai Fook 'Neutral' rating, 12-month target price 13 HKD. This target price based on 15x average FY3/26-FY3/27 expected P/E ratio. Report points out that before full FY26 results announced in mid-June, market should focus primarily on company's FY27 guidance, including store network, same-store sales, margins, gold hedging impact, drivers to improve same-store sales and margins, consumer behavior under gold price volatility backdrop, pricing strategy and drivers of fixed-price products, and progress on brand upgrade and overseas expansion.

Analysis framework

Goldman Sachs adopted typical earnings breakdown and forward-looking guidance analysis framework. Firstly, by comparing company earnings preview range with institutional internal forecast values (GSe), quantify the magnitude of beating expectations, and attribute to changes in gross margin (volume/price structure) and expense end (operating leverage). Secondly, combine high-frequency channel data (Labor Day same-store sales) to verify short-term prosperity. Finally, shift analysis focus from occurred FY26 performance to unclear FY27 outlook, focus on external variables (gold price volatility, exchange rate) potential impact on core profit indicators (gross margin, same-store sales), to arrive at neutral investment rating. This method emphasizes that in cyclical industries, historical performance although good, future visibility is key anchor for valuation.

Methodology notes

• Valuation MethodPE/PEG valuation

  Relative valuation method based on expected PE

  The research report uses the average of expected P/E ratios for the next two years (FY26-FY27) (15 times) as valuation anchor to determine target price. This is common valuation method for consumer companies, reflects market average expectation multiple for company's future profitability.

• Industry/Industrial Analysis FrameworkVolume/Price Breakdown

  Revenue and Profit Volume/Price Drive Decomposition

  The research report splits profit growth into 'Price' (gold price rise driving goods priced per gram margin improvement) and 'Structure' (increase in share of high-margin fixed-price products) two dimensions, helping readers understand real source of profit growth is inflation dividend or product structure optimization.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Operating Leverage Effect

  Report mentions 'disciplined cost control' (strict cost control) brought operating leverage, meaning while revenue grew, fixed cost proportion dropped, thereby amplified the degree of profit margin improvement.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Chow Tai Fook Jewellery Group (1929.HK)

  Direct beneficiary, FY26 performance beats expectations

  Strengths

  Gross margin improved with gold price rise, fixed-price product share increased, cost control effective, Labor Day sales strong

  Weaknesses

  FY27 growth prospects heavily affected by gold price volatility, margin visibility exists uncertainty

  Risks

  Gold price volatility, same-store sales recovery weaker than expected, mainland tourist preference changes

Key data

• FY26 Expected Net Profit86-92 billion HKDYoY growth 45-55%, higher than Goldman Sachs' forecast of 85 billion HKD
• FY26 Gold Price RiseApprox. 50%YoY rise, significantly beneficial for goods priced per gram gross margin
• Labor Day Same-Store Sales GrowthMid-to-High Teens %Recent channel check data shows strong demand
• Target Price13.00 HKDBased on 15x average FY26-FY27 expected P/E
• FY26 Expected Net Margin9.4%-10.0%0.2-0.8 percentage points higher than Goldman Sachs original expectation

Impact & implications

The research report believes that although FY26 performance beats expectations and recent sales data strong, may support stock sentiment in short term, but medium-to-long term, high gold price volatility increases FY27 operation uncertainty. Investors concern on fixed-price product demand durability and margin visibility limited valuation further upward space. Therefore, maintain neutral rating, suggest waiting for mid-June full results announcement and management's detailed FY27 guidance before making judgment.

Risks

• Same-store sales recovery speed lower or higher than expected
• Store expansion speed lower or higher than expected
• Rent cost reduction amount lower or higher than expected
• Mainland tourist destination preference changes
• China tourism policy changes
• Gold price and exchange rate volatility
• New brand performance poor

What to watch

• FY27 guidance on store network, same-store sales, margins and gold hedging impact
• Drivers to improve same-store sales and margins
• Recent same-store sales trends and consumer behavior under gold price volatility
• Pricing strategy and drivers of fixed-price products under gold price volatility
• Brand upgrade progress
• Overseas expansion progress