Dahua: Downgrade Chow Tai Fook's rating to "Underperform" and cut target price to HK$7

Daiwa released a report stating that Chow Tai Fook (01929.HK) recorded a year-on-year fall of 20% in retail sales in the first quarter ending at the end of June. The rating was downgraded from "buy" to "underperform the market", and the target price was halved from HKD 14 to HKD 7. The bank pointed out that it originally believed that most of Chow Tai Fook's sales pressure would be offset by the expansion of operating profits brought about by changes in product combinations and cost reductions. Therefore, it was not until after the first quarter sales performance was announced that the rating was lowered. Daiwa pointed out that although Chow Tai Fook's management stated that gross profit margin and operating profit margin improved compared to the same period last year, the bank believes that due to the intensification of deleveraging, the increase in revenue pressure will make it difficult for Chow Tai Fook to maintain its profit margin for the rest of this year. At the same time, it is believed that there is a risk of continuous downward adjustment of its market forecast. Daiwa lowered Chow Tai Fook's earnings per share forecast for fiscal years 2025 to 2026 by 30% to 32%, taking into account more cautious same-store sales expectations and the impact of deleveraging operations.