Asian Dividend Gems: Chow Tai Fook Jewellery

• Chow Tai Fook Jewellery's shares are down 28.2% YTD, sharply underperforming the Hang Seng Index which is up 6% in the same period. We believe this divergence is excessive.

• Chow Tai Fook's dividend yield averaged 4.8% from FY20 to FY24. Its annual dividend payout averaged 107% in the same period.

• Chai Tai Fook is currently trading at attractive valuations. It is trading at P/E of 10.1x, EV/EBITDA of 7.5x, and P/B of 2.9x based on FY25 consensus earnings estimates.

Photo by Vaibhav Nagare on Unsplash

Conclusion First

Chow Tai Fook Jewellery is one of the largest jewellery companies in the world. It has one of the strongest brand name recognition and loyal customers in the gold jewellery segment in China and Asia. The company provides attractive dividends. Its dividend yield averaged 4.8% from FY20 to FY24. Chow Tai Fook also has consistent record of generating solid, positive earnings and cash flow.

Nonetheless, its share price has significantly underperformed the Hang Seng index this year. Chow Tai Fook Jewellery's shares are down 28.2% YTD, sharply underperforming the Hang Seng Index which is up 6% in the same period. We believe this divergence is excessive.There are several reasons for this decline including continued weakness in the Chinese economy, concerns about new store openings in China, and uncertainty in the transition of Henry Cheng's business empire (including Chow Tai Fook) to his eldest son Adrian.

Despite these negative factors, Chow Tai Fook generated encouraging results in FY24. Chow Tai Fook's net profit increased by 20.7% YoY to HK$6.5 billion for FY24 (fiscal year ended March). Its revenue increased by 14.8% YoY to HK$108.7 billion. Revenue from gold jewelry increased 22.5% YoY and accounted for 82% of total revenue in FY24, driven by higher demand from younger generation customers in China and safe haven status of gold and gold jewellery.

Chai Tai Fook is now trading at attractive valuations. It is trading at P/E of 10.1x, EV/EBITDA of 7.5x, and P/B of 2.9x based on FY25 consensus earnings estimates. These valuation multiples are 56%, 44%, and 36% lower, respectively than its three year historical valuations (FY22 to FY24).