* H1 profit HK$1.82 bln vs forecast of HK$2.18 bln
* Sees positive signs in China retail market
* Shares down 22 pct this year, lagging main index (Recasts, adds focus)
By Donny Kwok
HONG KONG, Nov 29 (Reuters) - Chow Tai Fook Jewellery Group Ltd, the world’s biggest jewellery retailer by market value, said on Thursday it is targeting e-commerce as a pillar of future growth after online sales tripled in the first half.
The Hong Kong-listed company, despite posting a disappointing slump in six-month profit, was also upbeat about a near-term pick-up in China’s luxury spending and the prospect of strong longer-term demand due to increasing wealth and spending power in smaller cities.
With 12 million couples getting married in China each year, there is huge underlying demand for gold jewellery products, Chow Tai Fook Managing Director Kent Wong told a news conference.
Like rivals, Chow Tai Fook is focusing on expanding into second, third and lower tier cities in China, which are, according to some predictions, expected to help drive double-digit growth in demand over the next three years.
The company, which competes with Cartier, Tiffany & Co and local firms like Luk Fook Holdings (International) Ltd, reported a 33 percent fall in profit for the six months ended September to HK$1.82 billion, below an average forecast of HK$2.18 billion from five analysts polled by Reuters.
It was hurt by slower economic growth in China, higher operating costs and losses on gold hedging, but it said there were positive signs that indicated consumer confidence and mainland China’s luxury spending would pick up gradually.
The company said e-commerce channels would continue to extend its customer reach, especially to younger consumers and this business year’s online sales could climb as much as threefold. China’s e-commerce industry saw growth of 45 percent year-on-year in the second quarter to reach 278.8 billion yuan ($44.8 billion).
“We see huge development potential in e-commerce and we also see the practice is also changing with more people willing to shop online even for luxury goods,” said Wong.
The company also said that Cheng Yu-Tung, 87, the jewellery and property tycoon whose family controls the company, plans to retire as a non-executive director but remain as honorary chairman.
The company had flagged this month that it expected its gross profit margin to fall 2-3 percent during the six-month period due to gold hedging activities as the price of gold increased, and the warning had added pressure to its share price.
Shares of Chow Tai Fook have dropped 22 percent so far this year, compared to a 19 percent rise in the benchmark Hang Seng Index. On Thursday prior to the earnings announcement, they ended up 5.4 percent after Luk Fook reported better-than-expected results.
Seeking to better weather volatile gold prices, it now plans to relax its hedging level to about 70 percent of its total gold inventories from almost fully hedged.
Six-month revenue for Chow Tai Fook grew 6.5 percent to HK$25.4 billion, of which mainland China accounted for more than half, with lower-end luxury products the main driver of revenue growth. Sales of gold products comprised more than half of the total.
Wong also said the company would focus on products priced below HK$100,000 and be prudent in accumulating products priced more than HK$1 million.
Rival Luk Fook posted a smaller-than-estimated 22 percent drop in first-half net profit to HK$558.2 million, although it was hit by surging costs in staff and rent. Its shares jumped 10 percent to their highest in more than a month. ($1 = 6.2273 Chinese yuan) (Reporting by Donny Kwok; Editing by Edwina Gibbs)