00590

Research Coverage Initiation: Haitong International has initiated coverage on LUK FOOK HOLD (00590.HK) with an "Outperform" rating, forecasting net profits of $1.578 billion, $1.8 billion, and $1.977 billion for FY2026-2028.

Valuation and Target Price: The broker assigned a 15x PE ratio for FY2026, resulting in a target price of $40.35 based on comparable company valuations.

Financial Performance: LUK FOOK HOLD reported a revenue of $6.843 billion for 1HFY2026, a 25.6% increase YoY, with gross profit rising 33.2% YoY to $2.373 billion and a gross profit margin of 34.7%.

Profit Metrics: The company achieved an operating profit of $780 million (up 45.4% YoY) and a net profit of $619 million (up 42.5% YoY), with an interim DPS of $0.55, reflecting a payout ratio of 52%.

Impact of New VAT Regulations: The announcement of new VAT regulations on gold by the Chinese government led to a significant decline in the stock prices of gold jewelry retailers, as reported by BOCI.

Market Analysis: BOCI anticipates a mild negative impact on industry profits, predicting a mid-single-digit decline in EPS, but believes the current stock price correction is excessive due to other factors like falling gold prices and profit-taking.

Optimism for Key Retailers: Despite the market downturn, BOCI remains optimistic about CHOW TAI FOOK and LUK FOOK HOLD, rating both as Buy with target prices of $17.8 and $23.8, respectively.

Investor Sentiment: The upcoming interim results for both companies are expected to alleviate investor concerns amidst the current market volatility.