CTFJ reported a set of seemingly flattish 1HFY26 earnings, asrevenue/NP were -1.1%/+0.1% respectively. However, the underlyingnumbers suggested that CTFJ has managed to lift average sales perstores substantially. This could be reflected in 1 Oct – 18 Nov 2025same-store sales growth figures (+35.1% in mainland China), whichshowed strong momentum. With the consideration of higher-thanexpectedgold price, CTFJ also raised its guidance for GPM & OPM,while expecting a more manageable hedging losses in 2HFY26 andlimited impact from the latest VAT policy changes. We see these areencouraging signs of CTFJ achieving success from its strategic pivot,and could benefit from gaining more market share across all segments.Reiterate BUY with a higher TP of HK$18.1.
Key Factors for Rating
1HFY26 NP slightly missed on gold hedging losses, but we see limitedimpact on sentiment. Due to 18% YoY lower store count, CTFJ’s 1HFY26revenue was down 1% YoY to HK$38,986m, in line with previous announcements.However, NP was up 0.1% YoY to HK$5,677m, which could be slightly below ourexpectations whether or not the HK$3,143m unrealised loss on gold loans isconsidered (excluding such losses, adj, NP was up 1.5% YoY). Meanwhile, despitehigher gold price, GPM was still down 0.9ppt YoY to 30.5%, partly due to higherinventory cost of gold. Still, while this NP growth is weaker than what its peer LukFook (590 HK/TP: HK$23.80, BUY) indicated, we see CTFJ’s 1HFY26 profit wouldnot trigger a major disappointment, given CTFJ’s network shrinkage and its impacton NP has already been anticipated and priced in.
Encouraging 3QFY26 QTD trend to dismiss concerns. CTFJ also announcedthat during 1 Oct – 18 Nov 2025, same-store sales growth (SSSG) in mainlandChina reached+ 35.1%. While this is triggered by: (1) strong gold price volatility,and (2) some frontloaded purchases by consumers as CTFJ would raise theproduct price by end of Oct 2025, we see this strong SSSG an organic reflectionof CTFJ’s successful execution of new product strategy. Meanwhile, even after thelatest VAT policy change on gold products effective since Nov 2025, and CTFJfurther raised the gold product prices by 7% after this new VAT rule, CTFJ stillrecorded DD-level growth in SSSG in Nov 2025, reflecting a solid trend.
2HFY26 likely a more positive extension of successful reforms. In1HFY26, CTFJ’s fixed-price jewellery accounted for 29.6% of its revenue, up2.7ppts YoY. We expect this portion will further go up, improving its product mixand GPM further. Meanwhile, given the strong SSSG in 3Q25, we also expect thenet closure of stores in 2H25 may also taper (c.900 estimated for FY2026 full year).
More upbeat guidance despite the potential VAT impact. With the positive trends observed in 3QFY26, mgmt. raised the full year FY26 guidance:
Revenue: LSD YoY growth (unchanged)
SSSG: +ve MSD (unchanged)
GPM: 31-32%, or around 150-250bps YoY improvement (previous: 80-120bps YoY decline)
OPM: 18-19%, or around 160 to 260bps YoY improvement (previous: 80-120bps decline)
Gold hedging losses: 6% of total revenue (last year: 7%)
We see this guidance actually encouraging, which implied more operating leverage and benefits from gold price increases. This guidance also implies thatCTFJ has somewhat reduced its gold hedging ratio, which could help theCompany capture more upsides from gold prices. We hence expect CTFJ wouldsee stronger 2HFY26 OP/NP growth, which could be up to 36%/83% YoY. Wealso see more upsides from this guidance, as mgmt. adopted a rather prudentapproach to the potential sales impact after the VAT changes.
Key Risks for Rating
Downside risks: (1) unsuccessful multi-brand strategy; (2) deteriorated retailsell-through for core brand; (3) unexpected spike in spending; and (4) higherthan-expected hedging losses.Valuation
We adjust our FY26/27/28 core net profit (excluding hedging losses) forecastsby +7%/+2%/+3% to reflect the latest guidance, especially a more manageablegold hedging losses in FY26, and a more favourable gold price movement.
We raise our TP to HK$18.1, based on 16.5x FY27E reported EPS (unchanged).Our TP is equivalent to 20.8x reported FY26E EPS.
Maintain BUY. Overall, we see this set of 1HFY26 earnings and latest guidancequite encouraging. We expect CTFJ to enjoy an improvement of earnings in2HFY26 and likely FY27 thanks to improvement of SSSG and could maintain itselfas a leader of jewellery industry in China.