Value Investing

Things You Didn’t Know About Chow Tai Fook

With my recent trip to Hong Kong, I decided to check out some Hong Kong companies to look at how the business is faring especially after their share price has been battered down by the slowdown in the Chinese economy. One such company that I will be sharing on would be Chow Tai Fook, which is currently trading at its 5 year historical low as shown in the graph later.

logo_ctf Chow Tai Fook

Chow Tai Fook is the largest jeweller listed in Hong Kong by market capitalisation and recently tied with Tiffany as the world’s most valuable jeweller. The Group boasts an extensive retail network of over 2,250 point of sales, spanning nearly 500 cities in China, Singapore, Malaysia, South Korea and the United States.

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Walking along the streets of Hong Kong, it is undeniable that Chow Tai Fook definitely has a strong brand presence where its shops are practically everywhere. The following are 2 things we discovered about the company from visiting the stores and analysing the annual reports.

Business Misconception

Personally, I always thought Chow Tai Fook was a company that sold gold pieces, those old fashioned ones usually bought as gifts during traditional chinese weddings. However, this isn’t the case. The company has 4 divisions mainly:

  • Gold Products, 50% of Revenue
  • Gem-Set Jewellery, 28% of Revenue
  • Platinum and Karat Gold, 16% of Revenue
  • Watches, 6% of Revenue

Not only is the company not just designing gold products for traditional chinese weddings, they are doing brand tie-ups such as gold pieces in Hello Kitty, Disney & Angry Bird designs.

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Additionally, the company has been making a conscious attempt to not just provide gold products but diamond jewellery as well. This led them to the acquisition of Hearts On Fire, a US-based internationally acclaimed luxury diamond brand in August 2014.

Chow Tai Fook – Concentrated Family Holdings

Taking a look at the shareholders, one would notice the small public float of the company of approximately 10%. The founding owner, Cheng Yu-Tung holds 89.9% under his investment vehicle. Furthermore, the parent company Chow Tai Fook Enterprises owns the publicly listed New World a property, infrastructure, departmental store and hotel developer. Having developed departmental stores in 21 cities in China, this may provide Chow Tai Fook availability of locations as point of sales in China. However, this information is not verified and is just our conjecture.

Chow Tai Fook – Final Words

I found this recent trip to Hong Kong rather fruitful – walking along the streets, visiting companies that appeared on my screener to be cheap in valuations. Many Hong Kong companies have fallen 50-60% due to the slowdown of China. However, the question we have to ask ourselves is does this really mean no one is going to be buying such products such as in the case of Chow Tai Fook?