CTFJ’s FY25 net profit of HK$5,916m (-9% YoY) was still 7% above market consensus, reflecting the positive contribution of strong gold price on its GPM. Its recent SSSG has been improving, reflecting: (1) consumers are now more willing to buy gold in the current cycle, and (2) CTFJ’s successful execution of strategies, such as offering more fixed price gold products, and focusing on per store sales productivity. Hence, under this bottom-up approach, we expect CTFJ’s sales would be able to recover moderately in FY26. While we see CTFJ’s results would still be subject to the volatility of gold price and potential hedging gains/losses, the magnitude would be milder versus FY25 under mgmt’s expectations, and we also see its dividend payout attractive. Maintain BUY with a higher TP of HK$13.8.
　　Key Factors for Rating
　　FY25 results beat on strong gold price. CTFJ’s revenue was down 18% YoY to HK$89.7bn, 4% above our estimate. With strong gold price rally during the period, as well as improving product mix, full-year GPM reached 29.5%, a multi-year high since FY15. Its OPM also expanded by 410bps YoY to 16.4%, exceeding its previous guidance of 200-300 bps improvement. Hence, even with HK$6.2bn losses related to gold hedging, its NP of HK$5,961m (-9% YoY) was still 7% above consensus estimates. This reflects CTFJ benefited from the gold price momentum since late CY2024, as it aided strong GPM expansion and also ignited consumers’ sentiment to purchase gold after quarters of weakness.
　　1QFY26 showing further SSSG improvement, driven by both macros and micros. From 1 Apr to 31 May 2025, CTFJ’s retail sales value (RSV) declined by 1.7% YoY, which is a rather strong sequential improvement versus 4QFY25 (-11.6% YoY). We see this is again aided by the momentum of strong gold price as consumers now have a more bullish expectations. However, we also see CTFJ’s initiatives to adjust its product offerings, such as collaborations with popular IPs & new design series, have helped attracted more consumers. In the meantime, CTFJ is still phrasing out underperforming stores in early FY26, and we see this could be positive to SSSG for FY26.
　　Guidance somewhat cautious on gold price, but reflects confidence on organic SSSG. Mgmt. expected FY26 revenue to be up MSD YoY, while GPM/OPM to decline by 80-120bps/60-100bps respectively, under the assumption of gold price staying flattish at US$3,200-3,400/oz. Hence, we see CTFJ’s FY26 results would still be subject to the distortion from gold price volatility, but even under our more prudent revised assumption, we still see FY26 reported NP (+55% YoY) could benefit from the improvement of SSSG and less hedging losses, which could be supportive to dividends.
　　Key Risks for Rating
　　Downside risks: (1) unsuccessful multi-brand strategy; (2) deteriorated retail sell-through for core brand; (3) unexpected spike in spending; and (4) higher than-expected hedging losses.
　　Valuation
　　We revised up our reported NP by 23%/23%, and adj. NP by 13%/19% for FY26 and FY27 respectively, to reflect: (1) stronger-than-expected FY25 earnings where we have a lower assumption on gold price impact; (2) better- than-expected SSSG performance in FY26 thanks to both better sentiment and strategies executed by CTFJ, and (3) assumption of better cost control and operating leverage.
　　Our TP is lifted to HK$13.8, based on 15x FY26 reported P/E. (unchanged).
　　We maintain BUY as we see CTFJ is now on the path of benign recovery, driven by the current gold price cycle and its well-executed strategy. We also see its willingness to maintain high dividend payout (87.8% in FY25, versus 84.6% in FY24) a positive sign. Under the last close price of HK$12.28, CTFJ’s FY26E dividend yield of 6.4% is attractive, in our view.