Luk Fook - Strong 3Q FY26 performance exceeded expectations
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- Luk Fook reported 26% y/y revenue growth in 3Q FY26 (i.e., Oct-Dec 2025) and beat expectations slightly, with HK/Macau expediting growth since Dec 2025 to outperform the solid performance in Mainland China
- Increased price gap between HK/Macau and Mainland China, following the latter’s cut-back of VAT rebates on gold jewelleries since last Nov, should sustain price attractiveness for HK/Macau plays
- Impending catalysts include (1) ongoing benefits from a 6-9 months’ margin buffer on older inventories after price-hikes in Mainland China, (2) further RMB strengthening (+2% since Nov 2025), and (3) gold price uptrend amid rising geopolitical tensions and uncertainties. Anticipated seasonal strength around the Chinese New Year holiday should also underpin a positive 4Q FY26 outlook. We revised up FY26-27 earnings by 4% and raised TP to HKD33.87 benchmarking 10x FY27 PE (previous TP: HKD31.31 on 10x rolling PE, equivalent to its long-term average).
Progressive growth. Luk Fook achieved significant growth in 3Q FY26 despite a relatively higher comparative base. Total Retail Sales Value (RSV) increased by 26% y/y, with retailing revenue up 17% and same store sales (SSS) up 15%, exceeding expectations. Gold products were the key driver, with overall SSS for gold reaching +15% and fixed price gold products surging by 32% on a high base. This strong performance continued into early 2026, with overall SSS in 1-7 Jan 2026 outperforming 3Q FY26. In terms of store count, total number of stores reached 3,073 as of Dec 2025 (3Q FY26: -40 stores), including strategic opening of 17 new overseas shops during 9M FY26, and 9 stores in 3Q FY26 alone in regions such as Thailand, Vietnam, the US, and Cambodia to expedite overseas expansion as planned.
HK/Macao outshined. In terms of regional performance, HK/Macau & overseas markets demonstrated robust momentum in 3Q FY26, with RSV, retailing revenue, and SSS growing by 20%, 19%, and 16% y/y, respectively. In particular, we understand that HK has experienced accelerated sales expansion over the past 4-5 weeks, from a single-digit y/y growth in Oct-Nov to a double-digit increase and continues to sustain a promising trend. Macau also keeps up with strong performance. All these should likely be driven by the widened price gap following Mainland China’s reduction in gold jewellery VAT refunds from 13% to 6% since 1 Nov 25, hence attracting more Mainland tourist purchases in HK/Macau. RMB appreciation also boosted visitor traffic further.
Mainland delivered solid results. Luk Fook scored 26% growth in RSV, 11% growth in retailing revenue and 7% increase in SSS in Mainland China during 3Q FY26. Notably, licensed shops saw SSS improved to +31%, with a 38% increase in fixed price jewellery products. Specifically, the company experienced an exceptional, c.40% y/y sales surge in Mainland China during Oct-Nov 2025, fueled by the advance notification to customers of an impending price increase to align with rising input costs for new inventory that encouraged preemptive purchases, with benefits from holiday factors like the October Golden Week also boosting growth. With the price hike effective by Dec, Mainland growth normalized to a lower rate. More importantly, existing older-priced inventory should provide margin advantages for another 6 to 9 months, further supporting its gross margin in 4Q FY26 to 1Q-2Q FY27.
Optimistic outlook. Looking ahead, performance in 4Q FY26 (Jan-Mar 2026) is anticipated to be stronger, particularly in HK (e.g., Tsim Sha Tsui district) as well as Macau, driven by more tourist consumption during the Chinese New Year holiday (15-23 Feb 2026), market anticipation of further gold price strength, and the increased price gap between HK/Macau and Mainland China. Overseas and the Mainland growth should also stay firm. Following Luk Fook’s scoring of record gross margin of 34.7% in 1H FY26, profitability could also post an uptrend, along with benefits from older inventories in Mainland China and potential demand shifts to HK/Macau that enhance operating leverage. Any gold hedging losses should also have lesser impact versus FY25 amid its sound upturn in sales and margins. We reiterate a BUY.
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