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Chow Tai Fook hits record low after warning profit to plunge

Wednesday, November 11, 2015 - 19:18

[HONG KONG] Chow Tai Fook Jewellery Group Ltd shares fell to a record low in Hong Kong after it warned that first- half profit will plunge by as much as 50 per cent due to weak consumer sentiment in Hong Kong and Macau amid a slowdown in China's economy.

The world's largest publicly traded jewelry chain forecast its net income for the six months ending Sept 30 to decrease by about 40 to 50 per cent compared with a year earlier, mainly due to weakness in the two cities, increased sales of lower-margin gold products and unrealized hedging losses, according to a statement late on Tuesday.

Chow Tai Fook fell 7.1 per cent to HK$6.17 per share by the close of trading in Hong Kong, its lowest since debuting Dec 2011. The benchmark Hang Seng Index fell 0.2 per cent. The Hong Kong-based company is due to announce first-half results Nov 24.

"Even though we were expecting the profit to fall, such a big drop comes as a surprise," said Hannah Li, a senior analyst at UOB Kay Hian Ltd. While Chow Tai Fook has tried to deal with China's retail slowdown including by promoting higher-margin jewelry products and introducing more mid-priced products, those strategies haven't worked, she said.

The jeweler's biggest hope for margin improvement is through rental cuts for its shops in Hong Kong next year, Ms Li said via telephone. Chow Tai Fook is seeking a 20 per cent reduction in rent for some of its stores in the city when contracts come up for renewal this year, as sales of luxury items plunged, Managing Director Kent Wong had said in an interview in May.

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