CTFJ reported -1.9% YoY decline of RSV in 1QFY26 (Apr-Jun 2025), evidencing the continuation of its sequential recovery after the weakness since 1QFY25. This is achieved by a net reduction of 311 stores, which reflected CTFJ’s successful strategy of closing underperforming stores and redirecting traffic to better stores. With the launch of new product series such as Joie Collection and collaboration with well-known IPs, we expect CTFJ’s FY26 target to achieve a MSD same-store sales growth would be on track. We hence expect CTFJ would remain as a solid market leader under the current cycle of gold price, and reiterate BUY with a higher TP of HK$15.2.
　　Key Factors for Rating
　　1QFY26 RSV performance an extension of previous trend. The retail sales value (RSV) of CTFJ declined by 1.9% YoY during Apr to June 2025, which is a similar performance with the prelim figures released on 12 June 2025. In general, June figures were slightly worse than May, due to earlier Dragon Boat festival and “618” sales campaign in 2025 versus 2024. However, in general, with a low base in FY25 and a successful execution of strategies to lift same- store sales (SSS), the trend shows CTFJ’s RSV has been improving in both mainland China and Hong Kong, Macau and Overseas segments, and is on track to deliver a SSSG of +ve MSD for the FY26.
　　Improving franchises store performance despite POS reduction. During 1QFY26, CTFJ had a total net store closure of 307, and total no. of stores as of 30 June reached 6,337, a 16% YoY reduction. We see this is still slightly above market expectations, as 4QFY25 also had a net closure of 406 stores, and the majority of the stores closed are franchised stores in low-tier cities. Thanks to such adjustment, the SSSG of franchised stores during 1QFY26 (flattish) outperformed CTFJ’s self-operated stores (-LSD), which shows that traffic and resources of underperforming stores closed could channel to existing stores. We also expect if the SSS continues to improve, franchisees’ financial position could also improve, and may resume store opening in late FY26 or FY27, which could help CTFJ to further grab market share.
　　Brand lifting as the next driver. Aside from the adjustment of geographical mix, we see CTFJ has also directed more resources to the wealthier market segment, with the launch of premium series CTF Joie Collection, a fixed price product series that features gold and diamonds, and High Jewellery Collection, a series that features products with >RMB200k tag price. Mgmt. believes this could lift the brand value of CTFJ if the Collection becomes successful, and could also promote the sales of its mainstream products priced between RMB10k-50k. We see this a reasonable strategy, given sales of more premium gold products have been more solid under the current environment.
　　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 slightly adjust our FY26/27/28 EPS by -0.2% to +0.3% to mainly reflect the 1QFY26 progress such as POS reduction, and also the completion of the issuance of HK$8,800m convertible bonds.
　　We raise our TP to HK$15.2, based on 15x FY27E P/E (previous: 15x FY26E P/E). Our TP is equivalent to 16.6x FY26E P/E.
　　Maintain BUY. Overall, we expect CTFJ’s current strategies could help the Company to solidify its position as a jewellery market leader, and we also expect CTFJ to enjoy an improvement of earnings thanks to better SSSG and also reduction of gold hedging losses versus FY25. We also see its current FY26E dividend yield of 5.6% attractive.