China jewellery sector bottoms, Chow Tai Fook to benefit -analysts

Fri Jan 11, 2013 5:52am EST

* Analysts expect Chow Tai Fook to benefit thanks to vast network

* Aggressive network expansion, weak gold sales in China remain risks

By Donny Kwok

HONG KONG, Jan 11 (Reuters) - China's jewellery sector is bottoming, and Hong Kong-listed Chow Tai Fook, the world's biggest jewellery retailer by market value, is set to benefit the most from a rebound due to its vast store network, some analysts say.

Chow Tai Fook Jewellery Group Ltd, which competes with Cartier and Tiffany & Co, said late Thursday that revenue grew 4 percent in the third quarter ended December partly due to new points of sale.

With a strategy to open new stores in prime locations, Chow Tai Fook added a net 70 points of sale in the three months, bringing the total to 1,802 as of the end of 2012.

"Revenue growth should pick up over the next six months," CLSA said. "As a clear industry leader, Chow Tai Fook is well-positioned to capture the gradual sector recovery."

Yet, Chow Tai Fook warned it anticipated sales growth in the fourth quarter to remain slow though stable as the economy had not fully recovered and that the luxury market pickup was slow.

Despite the company's lacklustre outlook, some analysts were holding a more positive view.

"The worst quarter is behind the company and the pace of growth is likely to gradually re-accelerate in the coming quarters driven by technical factors as well as demand recovery," Bank of America Merrill Lynch wrote in a note.

Other industry watchers said aggressive network expansion and weak gold sales in China remained potential risks.

Shares of Chow Tai Fook fell 1.2 percent on Friday, lagging a 0.4 percent decline in the benchmark Hang Seng Index.

Smaller rival Luk Fook Holdings (International) Ltd dropped 1.2 percent and Chow Sang Sang Holding International Ltd declined 1.4 percent.

"Chow Tai Fook is the market leader in the long term. However, the current aggressive store expansion along with weak gold sales in China remain potential concern," Terence Lok, an analyst at Oriental Patron, wrote in a research report.

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