Date
26 September 2017
Chow Tai Fook appears to be losing its shine in the mainland gold jewelry market, as it competes with Shanghai-based Lao Feng Xiang. Photos: HKEJ, chinasspp.com
Chow Tai Fook appears to be losing its shine in the mainland gold jewelry market, as it competes with Shanghai-based Lao Feng Xiang. Photos: HKEJ, chinasspp.com

Time to rethink bets on mainland gold jewelry plays

For investors seeking to ride the mainland gold jewelry market, Shanghai-based Lao Feng Xiang Co. (600612.CN) appears to be a better bet now than Chow Tai Fook Jewellery Group Ltd. (01929.HK), columnist T Y Ko wrote in the Hong Kong Economic Journal Friday. 

Lao Feng Xiang has 2,355 outlets in the mainland, far more than Chow Tai Fook Jewellery, which is headquartered in Hong Kong. The former’s profitability is also improving, Ko noted. 

Chow Tai Fook was founded in 1929, while Lao Feng Xiang has a 166-year history. The latter is the big brother in the market, contrary to what many people believe, the columnist pointed out. 

However, Lao Feng Xiang, as a state-owned enterprise, had inherited some of the notorious inefficiencies like many of its peers, making it yield much lower relative to Chow Tai Fook.

The Shanghai brand earned about HK$23.2 billion revenue in the first six months of this financial year, compared to Chow Tai Fook’s HK$18.7 billion. However, in terms of profit, Chow Tai Fook’s HK$1.88 billion figure was three times of that of Lao Feng Xiang.

But what is worth noting is that Lao Feng Xiang notched 16 percent growth in earnings in the period, while Chow Tai Fook saw its profit slide 23 percent.

Hence, the outlook for the mainland firm looks better. 

Also, as China is cutting taxes in the country, mainlanders may do more of their gold jewelry shopping at home, rather than in Hong Kong, which could dampen Chow Tai Fook’s sales.

Given these factors, investors should consider switching out of Chow Tai Fook and move into Lao Feng Xiang, Ko wrote.

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VW/JP/RC

Freelance journalist

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