Luk Fook ... surprise ? ... surprise !
Analyst statements have been all over the place, from "in line" (Guotai, Jefferies), "slightly higher than market estimates" (Credit Suisse), "beat estimates" (Merril Lynch, Bocom) to "re-evaluation is expected" (Morgan Stanley). So which was it ?
Actually, no half year estimates had been given in advance, only full year estimates, and the analysts' consensus was 2.67 $ for the year.
http://www.4-traders.com/LUK-FOOK-HOLDIN...revisions/
Looking closer at this estimate, it was inflated by a "fun" estimate of an unknown research house of 3.55 $ in October, when many others had just revised their estimates downwards. The average of the others was 2.57 $.
To partition these 2.57 $ into the 2 half years, one has to keep in mind that
a) the second half is usually the stronger half, because it contains the year's 3 strongest months, December, January, February. This seasonality hasn't been visible throughout all of the last couple of years, mainly due to the gold rush and other gold price fluctuations and, for individual companies, such as Luk Fook, due to waves of new store openings. However, the seasonality exists and should be included in a proper unbiased estimate.
b) H2 of 2013/14 is the best data point for the current H2 2014/15, because the effect of the gold rush was over and the consumer sentiment in HK sluggish and similar to present. Price of gold was declining slowly, also similar to present. Earnings in H2 2013/14 were 1.54 $.
A proper analysis would then have estimated H2 earnings similar to H2 2013/14, conservatively assuming no growth in HK/Macau at slightly increased cost compensated by growth in the PRC.
Subracting H1 2013/14 from 2.57 $ would then have left an estimate of 1.03 $ for H1 2013/14.
The reported earnings were 1.37 $. I would call this "beat estimates" or better.
But this is not all. ALL analysts expected that Luk Fook would perform much worse this year than its main competitors Chow Tai Fook and Chow Sang Sang.
There are 3 reasons for that, all speaking clearly against Luk Fook.
a) Luk Fook had profited much more than anyone else from the last year's gold rush. Expectation was therefore, that Luk had to give back more revenue and earnings than anyone else.
b) Luk Fook has a larger exposure to Hong Kong and Macau than its competitors. It was therefore expected that Luk Fook would suffer more from the sluggish retail climate in HK and profit less from the growing business in the PRC.
c) Luk Fook has by far the lowest hedging ratio. A further declining gold price was supposed to hurt Luk Fook more than its competitors.
Now the results are out and in contrast to ALL analysts' opinions, Luk Fook's earnings declined less than Chow Tai Fook's. A HUGE surprise.
Looking ahead, I would now go along with Bocom's estimate of 3.02 $ this year and 3.58 $ next year. I would also agree with Morgan Stanley that a re-evaluation should be expected. See:
http://www.bocomgroup.com/mediafiles/doc...085_en.pdf
http://www.aastocks.com/en/stocks/news/a...W.640508/1