July 10, 2013 6:29 am

Chow Tai Fook jumps on Chinese gold rush

Chow Tai Fook staff attend to customers in the company’s store in Hong Kong©Bloomberg

Shares in Chow Tai Fook jumped 13 per cent on Wednesday after the world’s biggest jeweller reported soaring revenues from China’s April gold rush.

On Tuesday night, the Hong Kong-listed company said it had achieved revenue growth of 63 per cent in the three months ending June 30, as Chinese buyers flocked to the high street to snap up gold products amid a worldwide price slump.

Over four days in mid-April, the spot price for gold plunged 14 per cent. That prompted feverish buying from Chinese consumers and led to shortages at banks, jewellers and even the Hong Kong gold exchange.

In Hong Kong and Macau – popular shopping destinations for mainland Chinese tourists – Chow Tai Fook’s revenue over the period was up 85 per cent on the previous year.

Although the company did not disclose sales figures, the percentage increases echo data from the Hong Kong government, which showed sales of jewellery, watches and valuable gifts jumped 68.8 per cent in April from a year earlier. For every HK$1 spent in the city that month, more than 30 cents went on such items.

In its earnings release, Chow Tai Fook described the revenue rise as “remarkable”, and attributed it mainly to the buying sparked by the global sell-off in the precious metal. Gold and gold products rose to account for 69 per cent of total sales, up from 58 per cent a year earlier.

While shares leapt on Wednesday, the stock is down more than 25 per cent year to date. Like its rivals Chow Sang Sang and Luk Fook, investor enthusiasm for Chow Tai Fook has been hit by a crackdown on corruption and official gift-giving by the new leadership in Beijing.

And while analysts said the second-quarter gold rush was a clear boost for Chow Tai Fook’s overall annual performance, it is likely to be a one-off.

CIMB’s Larry Cho said revenue trends would “normalise” in the second quarter given the “expectation that gold’s further price correction in June has not been met with a similar surge in physical demand as in April”.

One institutional investor took advantage of the higher stock price to sell US$100m in shares at a discount of between 5 per cent and 8.3 per cent to Wednesday’s closing price, according to a term sheet seen by the Financial Times.

Despite a brief recovery that was partly attributed to Asian buying, spot gold prices have fallen a further 7 per cent from their April lows. The yellow metal now trades at $1,245 per troy ounce, down from $1.675 at the start of the year.

Chow Tai Fook is the world’s largest jewellery retailer by market capitalisation. It operates 1,856 stores in total, with 108 in Hong Kong and Macau and the rest in mainland China.

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