Luk Fook Holdings (International) Limited (0590.HK) Earnings Call Transcript & Summary

Welcome to Luk Fook FY 2021 Annual Results Announcement. Now I'll pass the call to Koey. Thank you.

Good evening, everyone. Thank you for joining the call. I'm Koey from the IR team of Luk Fook. Today, we have the pleasure to have Dr. Kathy Chan, Executive Director and CFO of the group and speaker, to talk about our financial year 2021 annual results. We will go through the corporate presentation, which is already uploaded onto our corporate website, followed by the Q&A session. Now may I pass the time to Kathy for the presentation.

Thank you, Koey. Good afternoon, ladies and gentlemen. Thank you for joining Luk Fook's FY '21 Earnings Results Conference Call. It covers the year ended 31st March 2021. We will talk about our financial highlights first and followed by financial review and then our future financial strategy. So let's go to Slide 4 now. So our group's revenue dropped by 21% to HKD 8.9 billion, and operating profit increased by 7.6% to HKD 1.2 billion, while profit attributable to equity holders increased by 17.4% to HKD 1 billion. And basic earnings per share increased by 15.9% to HKD 1.73. Our Board of Directors intends to distribute special dividend for celebrating the third year anniversary of the establishment of Luk Fook to reward our shareholders. Therefore, we proposed a final and special dividend of HKD 0.50 each per share, totaling HKD 1 per share. Taking into account of the instrument special dividends paid, the total dividend for the year would amount to HKD 1.5 per share. The dividend payout ratio will be 86.6%, which is higher than our official dividend payout ratio policy of 40% to 45%. During the year under review, the group has net increased 246 stores worldwide, which were mainly Luk Fook licensed shops in Mainland. At the end of March 2021, including the brands, the group has 2,366 shops worldwide altogether. Now let's go into the details of our financial performance. Let's look at Slide 6. With the impact of the COVID-19 pandemic, the retail sales in Hong Kong and Macau decreased substantially by 51% and 40%, respectively. Luk Fook group's revenue, therefore, dropped by 21% to HKD 6.9 billion, with overall gross margin maintaining at a stable level of around 30%. Gross profit, therefore, decreased by 21% to HKD 2.6 billion. On the other hand, total operating expenses decreased by 20% as well. Its ratio to revenue also maintained a stable level of around 19%. The steadily declining gold price in the second half of FY 2021 and the strengthening renminbi led to a turnaround gain on gold hedging and net exchange from losses last year. As such, direct improvement of operating profit by HKD 167 million and HKD 58 million, respectively. Together with the various increased government subsidies of HKD 87 million in response to the pandemic, operating profit, therefore, increased by 7.6% to HKD 1.2 billion. Furthermore, the strong cash position led to a substantial improvement in net financial income by HKD 52 million. Together with the narrowed share of losses of associate by HKD 24 million, the group's profit attributable to equity holders increased by 17% to HKD 1 billion. As a result, our operating margin increased by 3.7 percentage points to 14%, while net margin increased by 3.8 percentage points to a record high of 11.5%. Now let's turn to Slide 8. By enforcing our keen targets in reducing inventory level, our inventory balance further decreased to HKD 7.3 billion by end of March 2021. However, as the decline was much smaller than the significant drop in retail sales, especially in Hong Kong and Macau, the average inventory turn of days grew by 50 days to 451 days. On the other hand, the group's net cash increased substantially to HKD 2.5 billion. ROE was 9%, which was a bit higher than last year. Let's go to Slide 9. The group's NAV per share as at end of March 2021 was HKD 19.29, which was 8.8% higher than last year. Now let's look at Slide 11. As the border restrictions have not been lifted, revenue from Hong Kong, Macau and overseas markets decreased by 43.4% and to HKD 3.6 billion, which accounted for 40% of the group's revenue. The segment profit decreased by 80.6% to HKD 75 million, which accounted for 6% of the group's total. The segment profit margin was 2%, a drop of 4.1 percentage points. In the mainland market, the revenue increased by 7% to HKD 5.3 billion, accounting for about 60% of the group's total revenue. The segment profit increased by 36.8% to HKD 1.2 billion, accounting for around 94% of the total. And the segment profit margin was 23.5%. Slide 12 shows our revenue and segment profit by business. The retail business was the group's primary source of revenue as the retail sales of Hong Kong/Macau market dropped significantly. The group's total regional revenues decreased by 36.8% to HKD 5 billion, accounting for 55.9% of the group's total revenue. Its segment profit was also decreased by 54% to HKD 195 million, accounting for around 15% of the total and selling profit margin was 4%. Attributable to the increase in number of licensed shops, the group's wholesale business revenue rose by 14% over the corresponding period last year to HKD 3 billion. Accounting for 33.4% of the group's total revenue, its segment profit increased by 32% to HKD 409 million, revenue for 30.9% of the total. Its segment profit margin was 13.8%. Licensing income increased by 18% to HKD 946 million due to the increase in number of licensed shops as well, accounting for 10.7% of the group's total revenue. The segment profit margin was 76%, while segment profit increased by 27.4%, so HKD 719 million, accounting for 54% of the total. Let's look at Slide 13 now. Due to the impact of the strong gold price, most of the time during the year under review and the drop of retail sales in Hong Kong and Macau markets, thus, amount of gold and platinum products decreased by 25.8% to HKD 3.7 billion, accounting for 47% of overall sales amount. Gross profit of gold and platinum products declined by 23% to HKD 880 million, accounting for 43% of the -- of our gross profit. Its gross margin was 22%. On the other hand, sales amount of fixed price jewelry products fell by 22.6% to HKD 4.2 billion, accounting for 53% of the overall gross overall sales amount. Gross margin of fixed price jewelry products dropped by 5.2 percentage points to 25.8% because of increase in revenue mix from price 43% to current year's 61% of hotel business, which was aggressively low gross margin. This gross profit, as a result, decreased by 35.8% to HKD 1.1 billion, accounting for 56.9% of the overall gross profit. Let's look at Slide 15 now. During the year under review, retail revenue from Hong Kong/Macau and Overseas market decreased by 46.8% to HKD 3.2 billion, which accounted for 91% of its total. Its segment loss was HKD 19 million. On the other hand, because of the sales of raw material growth, its wholesale business revenue increased by 1.6x to HKD 260 million, which accounted for 7.3% of its total. The segment profit increased by 23.5% of HKD 148 million, which accounted for 64.6% of its total; while segment profit margin was 18.6%. Apart from that, Hong Kong licensing income decreased by 34.6% to HKD 46 million, which accounted for 1.3% of this total. The segment profit was HKD 46 million, which accounted for 61% of its total and segment profit margin was 100.8%. Let's look at Slide 16 now. During the year under review, despite the decrease in number of self-operated shops, with effective pandemic control in Mainland and overseas travel restriction, which helped to stimulate domestic consumption, retail revenue from the mainland market decreased by 1.8% only to HKD 1.7 billion, which accounted for 32% of its total, benefiting from the closure of some loss-making shops. Segment profits increased by 25% to HKD 213 million, which accounted for 17.2% of the total. The segment profit margin was 12.6%. Due to an increase in number of licensed shops, revenue of wholesale business in Mainland markets rose by 8.4% to HKD 2.7 billion, which accounted for 50.9% of its total. Because of effective cost control and increase in VAT refund of HKD 41 million due to the increased diamond imports, the segment profit increased by 46.4% to HKD 316 million, which accounted for 28.9% of its total. Its segment profit margin was 13.3%. Licensing income in mainland market rose by 23.2% to HKD 900 million as a result of increased number of licensed shops as well, which accounted for 16.9% of its total. Its segment profit increased by 36.1% to HKD 673 million, which has accounted for 53.9% of its total and segment profit margin was 74.7%. Let's go to Slide 20. Now, looking at our self-operated shop performance. During the year under review, the overall SSSG of the group was negative 40% and SSSG for the Hong Kong/Macau market, and therefore Mainland market, were negative 47% and negative 5%, respectively. SSSG for gold and platinum products was negative 32% and therefore, fixed priced jewelry products was negative 51%. Due to the interest of a strong gold price in most of the time during the year under review, gold and platinum and fixed price jewelry sales recorded a decline in revenue and quantity but an increase in ASP in all markets. Slide 21 shows the same-store sales growth figures of self-operated shops and licensed shops in different city tiers and regions in Mainland. Overall speaking, licensed shops performed better than our self-operated shops. Licensed shops normally are located at better locations and better fixed price jewelry sales mix in Mainland. Furthermore, most of our self-operated shops remitted in Northern and Central parts of Mainland, where the pandemic was the most serious during the year under review. The same-store sales growth of licensed shops were positive 12%, while that for self-operated shops was negative 2% during the year under review. Let's look at Slide 24 now. We have POE of HKD1.7 billion, representing a decrease of 20%. Its ratio to revenue maintained at a steady level of around 19%. The adoption upon HKFRS 16 rental-related expenses, including rental-related depreciation of right-of-use assets, fixed and variable rental expenses altogether amounted to a total of HKD 454 million, representing a 31% drop year by year. There were 17 shops in Hong Kong/Macau subject to rental renewal in FY 2021, accounting for around 3% of the total number of shops there. The overall rental reduction was around 33%. The term of the renewals were a short-term of 1 year only. Therefore, we would have 54 shops subject to renewal in FY 2022 which is around 60% of the number of shops. Given the current situation in Hong Kong, we have actively negotiated for rental reduction for our renewals. We expect a double-digit drop on this renewal in the upcoming year as well. Apart from the reduction of renewals, we have around some HKD 17 million, rent to concession from landlords because of the pandemic during the year under review. Let's look to Slide 25. By enforcing our keen targets and reducing inventory level, our inventory balance decreased by 2.8% to HKD 7.3 billion by end of March 2021. However, with the substantial decline of sales in Hong Kong/Macau market and the average inventory turnover days grew by 152 days there. The overall inventory turnover days calculated basing on the average inventory -- average inventory, therefore, increased by 52 days to 451 days despite the decrease in inventory levels. Let's look at Slide 26. In FY 2021, the group incurred CapEx of HKD 243 million, which mainly represented the appreciation cost of HKD 74 million staff accommodation in Macau and acquisition cost of HKD 71 million of office and showroom in Xi'an and Shenzhen, and HKD 15 million prepayment of plant expansion project in Panyu. Now let's look at Slide 24 -- 27. During the year under review, the loss of associates of the group narrowed, while taking into account our resources rising from its parent company, HKRH, with the rules of investments and operating activities in HKRH and its subsidiaries remained flattish at HKD 38 million. Now let's look at the group's future plans and strategies. We are now at Slide 29. Two years ago, the group has set up its new 3-year corporate strategy with supply chain management, Mainland market expansion and strategic growth as its 3 main focuses so as to foster its future business growth. In order to further enhance the group's competitive edge, the group will focus on strengthening supply chain management through various means. Let's look at Slide 30. We will try our best and endeavor to identify right products, set right price and allocate products to the market at right time by implementing high level of automation and big data management, improving factory productivity, shortening inventory turnover period, establishing strategic partnerships with suppliers, streamlining logistical distribution and intensifying support to licensees. Having all this would help to promote our business developments and strengthen our operational efficiency and effectiveness. We believe that customers increasingly are focus on jewelry with unique design following the introduction of the DIY ordering service system in Mainland. During the year under review, the group will also launch the DIY system in Hong Kong, Macau and overseas. This will help the group to penetrate into the high-end market progressively. The sales amount of DIY system was RMB 72 million during the year under review since its launch in July 2020. Let's look at Slide 31 now. The group has already adopted multi-brand strategy and will strive to develop more new brands in the future. During the period under review, we have net added 28 Goldstyle shops. Slide 32 shows our new brand, Lukfook Joaillerie. Apart from Goldstyle Dear Q, the group will continue to develop new brands in the future. During the year under review, the group has also established a new product line named Lukfook Joaillerie, which targeting the high end jewelry market and has opened a total of 3 shop-in-shops in Macau and the Mainland in FY 2021. Slide 33 shows our expansion plan in FY 2022. It's that 18th June 2021, including new branch, we have a total of 2,436 shops worldwide. That's 70 net additions since end of March 2021.As at end of March 2021, the group had a total of 2,356 shops globally, including 2,294 shops in Mainland, 47 shops in Hong Kong, 13 shops in Macau and 12 shops in overseas. With better border restrictions I've seen in Macau, the group will add a net 2 shops in Macau and 1 as a used licensed shop over the coming year. In view of the anticipated considerable growth of the middle class population in Mainland, the group remains optimistic about the mid- to long-term business process. Therefore, the group will focus its expansion in the mainland market and expect to net add 350 shops, which will be mainly licensed shops in fourth and fifth tier cities in new financial year. The group is committed to further developing its e-commerce business and strengthening of cooperation with various e-commerce platforms in Mainland. At the same time, we also established its own e-commerce platform, aiming to sustain the growing e-commerce revenue with a target of 20% growth in the coming year. The CapEx budget for FY 2022 to be around HKD 400 million, which will be used for shop renovation, manage our plant and office renovation and establishment of new production line in Yichang and purchase of equipment and premises. The site areas of plants in Nansha and Yichang were 40,000 meters square and 33,000 meters square, respectively. Let's look at Slide 34 now. In FY '21, e-commerce revenue increased by 34%. The revenue accounted for about 50% of the group's retail revenue in Mainland with a stable ASP of RMB 1,300. We accounted for 17% of gross retail revenue as compared to 8% last year. The group will continue to commit to further enhanced synergy between online and offline sales channels. We have allocated more resources on shop reviews and restructuring of supply chain to improve inventory turnover. Slide 35 shows our membership program. At the end of March 2021, the total number of members increased by 1.4x to approximately 2.4 million members. The members contributed 33% of the group's total retail sales. The members in Mainland, Hong Kong, Macau and overseas markets increased by 1.6x and 94%, respectively, while the members contributed 19% and 59% of their respective markets. Let's turn to Slide 36 now. The group also continued to capture the rapid growth of online marketing by various marketing activities in new media platforms. We made use of trending social media platforms, including RED at Xiaohongshu, TikTok, that's Douyin and e-sports to increase our brand exposure and expand our footprint in the young consumer markets. We expanded online sales by live streaming by staff and KOLs and enhanced CRM via instant messaging apps to reach and engage with customers. We are now on Slide 37, as the group's anniversary was just few days after Double Seventh Festival, we invited our global brand ambassador, Mr. Li Yi Feng, to show up at the live stream event, which recorded over 12 million views that effectively enhanced brand awareness and create a hot topic. Let's go to Slide 38 now. To celebrate this grand anniversary, we collaborated with 100 KOLs on 5 major social media platforms to conduct an all-round product promotion. Three topics on anniversary promotion altogether gained a total of 700 million views and 1.2 million discussions. We are now on Slide 39. The group held the Love for More, Bling for More new product launch event in Shanghai to celebrate the sparkling beauty of [ beloved ] with Mr. Li Yi Feng. The event was simultaneously live streamed on both Luk Fook Jewelries official platform, Weibo, and Tmall flagship store, which recorded over 10 million views. Slide 40 shows our cross-platform promotion, including Weibo, Xiaohongshu, Douyin and Taobao, driving our online exposure to new highs so as to raise Luk Fook's brand awareness among young consumers. On Slide 41, the group -- you can see that the group teamed up with Alipay again to participate in the Chinese New Year Five Auspicious Cards Campaign event, which realized brand exposure of 150 million viewers, rapid traffic growth and increased interactions with customers, greatly enhancing the brand penetration. To conclude, due to the low base effect, the same-store sales of the group for the quarter from January to March 2021 has turned around to positive growth and the group's business is expected to low grow rates again in the coming year. The group also recorded satisfactory same-store sales growth for the period from April to the first 2 weeks of June 2021, with same-store service growth of around 1.2x in the Hong Kong/Macau market and around positive 50% for the Mainland market. Therefore, we think the worst is over, and we expect double-digit same-store sales growth for our business in current financial year. This is the end of my presentation, and thank you for listening.

Thank you, Kathy. Moderator, please open the floor for the questions now.

[Operator Instructions] Our first question is Tiffany Feng from Citi Group.

I have 2 questions. The first one is the gross margin, GP margin for the fixed-price jewelry product. Could you explain the reason of the big decline year-over-year and also half-on-half decline? And what is that outlook for the GP margin for the fixed-price jewelry product going forward? And the next question is the rental trend for renewal and total rental for Hong Kong and Macau for this financial FY '22 . And then my last question is what is our longer-term outlook for the OP margin for the Hong Kong and Macau market. Maybe -- could you give us some targets before, for example, before the border will open and after the border will open? Yes and also the op margin outlook for Mainland China for the longer term?

Oh, actually for the fixed price jewelry gross margin, the reason why it decreased by 5 percentage points this latest financial year was mainly because of the substantial drop in retail revenue, which is of a much higher gross margin than the wholesale revenue. And with the increase in number of licensed shops, the wholesale rent venue increased quite a bit. And that's why it's -- together with the substantial decrease in the retail revenue, altogether, led to a much drop in the gross margin of fixed price jewelry. Then if we talk about the longer-term outlook for the gross margin fixed price jewelry, I think with the improving retail revenue in the coming future, after the border restrictions uplift, I think the gross margin of fixed price jewelry would go back to a normal of maybe more than 30% in the past. And for the rental renewal trends for FY 2022. We have something like 33% reduction for last financial year for the rental renewal. And in the upcoming year, we've got about maybe around 60% shops subject to renewal because kind of the renewals are actually brought forward from last financial year. Because of the sustainable drop in the rentals, the landlords we're very reluctant to sign long-term lease with us. So it's only a 1-year term. That's why altogether, we've got 34 shops, actually, subject to renewal in this current -- in this financial year. And we still expect double-digit drop in the renewal. But it won't -- it should not be as high as last year's 33%. And then for -- longer-term outlook of operating margin in Hong Kong/Macau markets and Mainland -- actually, for the Hong Kong/Macau markets, I guess, because there is still a kind of a cross -- limited cross-border activities, and I think after the relaxation, the operating margin of Hong Kong/Macau should be growing step by step. Actually, although in the first half, it's a loss and the second half is actually becoming profitable already. But altogether for the full year, because of the -- it was the loss in the first half larger -- was larger than the profit in the second half, that's why we still have a HKD 19 million segment loss in -- for the full year. So basically, we should expect maybe something like -- in the past, we've got something, like, maybe -- something like a low double-digit operating margin properly. And then for the mainland markets, actually, because of the high gold price, it's enjoying quite a good gross margin for the gold sales. And then -- and that's why, for the mainland market for the retail business actually is a -- it's quite a -- it's -- we're tracking quite a good improvement in the segment margin. But actually, I think when the gold price is becoming more stable, the risk -- the margin of mainland market should be lower than the current one.

Okay. Kathy, can I follow-up? First of all, for the fixed price jewelry product GP margin, did you offer extra price discount? Or it's just because of the mix change? And secondly, for the OP margin of Hong Kong and Macau, you mentioned historically low double digits. Do you think it is still achievable after the border reopening?

Actually, all depends on the pandemic development. And I think for Hong Kong -- Macau should be much better. And we are -- that's why we're adding more shops in Macau as so as to compensate the core business in Hong Kong. So it all depends on the pandemic situation. With the improving Macau business, hopefully, I think for Hong Kong/Macau altogether, we should be able to -- going back to a better operating margin. But I think it's hard to see it going back to the previous one. So that's why I think we have to wait a bit to see the real situation or how the pandemic situation is developing.

Okay. And then for the GP margin, did you offer price discount or just because of the mix change?

Sorry, I can't catch your second question. Can you repeat once more?

I mean, for the GP margin drop for the fixed price jewelry product, I'm wondering if you -- did you give price discount or the drop is just because of the mix change?

In fact, we have some discounting activities. But when you look at the retail margins, actually, it's quite stable. So the base -- the drop in the margin is mainly because of the revenue mix change.

This question is Mavis from DBS.

Kathy, I have a few. So maybe we'll go one by one. The first question is that, can we have an update on the sales performance and profitability of our wholesale division for the first quarter of this financial year so far? And what would we expect to be the trend for the full year of FY '22, this financial year?

Well, actually, we normally talk about the same-store figures. And it is a kind of our tips for our forecasting of the wholesale business, though with some time lag. So when you look at the same-store sales growth figures for the Mainland from April to first 2 weeks of June, we've got talking about a positive 50%. So basically, for the first -- because after sale, after they sold their products, the licensed shops need to replenish their products. So basically, with such a good recruitment -- I mean, good growth in the same-store sales figure, we should expect the wholesale to follow. So -- but then when you look at the wholesale business, it's mainly talking about diamond products and Goldstyle that's also within the fixed price jewelry. So basically, if our fixed price jewelry figures are good enough, then you will see our wholesale revenue to increase in similar manner.

I see. Great. So my second question is that China actually has been seeing better momentum in recent months. And -- but then if we think that we could probably experience some slowdown ahead, if once Hong Kong border reopens, yes. So would that be the case in terms of your expectation? And overall, how do we strategize for the Mainland China market going forward?

In fact, we believe that the cross-border restriction, [ active ] restriction would lead to more domestic consumption in mainland market. So with the uplifting of those restrictions, of course, we should expect people to buy -- to start to buy products, jewelry more in maybe Hong Kong market and Macau markets. But we have quite fast expansion in Mainland China. So especially penetration into the fifth and fourth tier cities. So basically, we should expect our wholesale revenue and licensing income to grow well in the coming period of time with such fast expansion, especially into the lower-tier cities. And for the lower -- for the people in the lower-tier cities, we -- I think they would have less frequency to travel overseas or travel to Hong Kong/Macau market. So basically, I think with the fast expansion in Mainland markets, it should be more than offsetting the negative impact following the further border restriction uplifting.

And you just mentioned about the first quarter FY '22 same-store sales growth trend for Hong Kong/Macau. Is it possible to actually break it down into Macau alone and Hong Kong alone in terms of sales trend, please?

Oh, actually, you're talking about discrete of -- actually both Macau and Hong Kong are having something like a positive figure. Of course, Macau's figure will be much, much higher. Growth figure will be much, much than Hong Kong figure. So basically, like, Hong Kong same-store sales would be something like 40-something or around 50%. And so Macau is talking about maybe, let me see, is talking about growth of 18x, something like that. Because Macau is having a much lower base than Hong Kong, actually, at the early stage of the pandemic because it's talking about more than 90% drop of revenue. While Hong Kong is -- was talking about a lower drop during that period of time.

Right. And Macau, on the door, is already profitable, is that right?

Yes.

Great. Great. And lastly, as we are also seeing rising demand for O2O channels in both China and Hong Kong. So aside from working more with third-party e-commerce platforms, do we have plans to further beef up this O2O segment by riding on, for example, riding on our own website?

Yes, we have plan to develop our own website. I mean the development -- develop our own e-commerce platform. That's actually on our website.

Right. So -- but in terms of O2O, online to offline, perhaps, it probably will still take some time. Is that what you mean?

It's soon. It's upcoming. And then actually, apart from the e-commerce platform, we are using apps as well to do that kind of promotion.

Next question is from Emily Lee, Nomura.

Kathy, I just want to clarify this first quarter same-store sales figure. So you mentioned Hong Kong is seeing 40% to 50%, Macau is 1.8x. And for China, it was over 50%. Is that correct?

No, for Hong Kong, it's around 50% growth. And then for Macau, it's 18x.

18x.

Because Macau's figure was very minimal, a drop of more than 90% during last financial -- I mean, same period last financial year. That's why we've got such a big jump. Because most -- many Macau shops actually have very minimal sales last year during that period of time.

Understood. And China, what's the first quarter same-store sales?

China is talking about around 50% growth for its shops altogether.

For all shops, so including licensed...

All shops, licensed shops and self-operating shops.

Okay, got it. Is it possible to give us some full year guidance for same-store sales? Because, obviously, first half and second half, last year, the base is actually quite different. So it's very likely first quarter numbers is probably going to be higher compared to the second quarter -- sorry, on the second half. So is it possible to give us any guidance as to how we expect the full year is going to be for both markets?

Of course, we have our own expectation or forecast. But then I think this is -- it all depends on the development of the pandemic. So basically, we are actually expecting something like double-digit same-store sales growth for this financial year. But it's hard to tell how much it will be. But I guess, maybe it should be at least more than 20% altogether for the full year, at least, hopefully.

Okay. 20% altogether for the entire group.

More than that, should be more than that. Well, of course, we should expect higher growth in the first half and lower growth in the second half.

Understood...

And then for -- actually, we have some problem in the Southern parts of China recently, and that would affect the performance of Mainland's business in -- I mean, in the recent -- in 1 or 2 months.

Okay, what is the percentage of our Southern China business versus the total of China?

Oh, it's mainly licensed business. I mean, it's not self-operating. We don't have any self-operated shops in the Southern part of China.

Yes. But how -- what's the proportion of our sales in China is coming from Southern China?

We -- for the wholesale business, we haven't split it up by region. I have to check that.

Okay, no problem. Last question from me. I can see from your MD&A that we have actually closed 33 self-operated store in China last fiscal year. Just wondering, is it because they were underperforming? Or is it because we are switching strategy so that we will be more focused on the licensed shops? Or what exactly is the reason behind it?

In fact, most parts of that would be because we have sold our JV to our licensees. Because some years ago, we have -- we have the -- the JV established so that we have increased number of self-operated shops. But that means after some years of cooperation, we found that it may be much more efficient if we can -- because that licensees also are running her own licensed shop. So physically, it will be more efficient to let her do all -- to run all the shops all by herself. So we have sold the JV to her in this front in the last financial year. That led to a 23-shop drop in the self-operated area. So the other 10 will be really 100% licensed -- self-operated shops or sales. So they are -- so for the closure of our shops, our own 100% shops will be mainly because of -- because they are loss making.

Okay, when you said JV, we sold the JV. Does it mean 3D GOLD?

Sorry?

You said you sold some shop -- the JV business to them -- to the licensees, right?

Yes.

When you say JV, does it mean that's 3D GOLD?

No, the JV is actually running both local shops, the 20 local shops and 3 3D GOLD shops. That's why and all -- previously, all our 3D GOLD shops were run by her. That's why after the selling of the joint venture, we don't have any 3D GOLD self-operated shops in Luk Fook, I mean.

Okay. And how much did we sell it for? How much gain was booked in the last fiscal year?

Sorry?

How much gain that we booked in the last fiscal year by selling the JV to this licensee?

That's not very much. I have to check that. It's not a very significant figure within our book. I have to check that.

Our next question is Linda Huang, Macquarie.

Kathy, I have a several questions, maybe some clarification. The first one is I want to check, you say for the first quarter, same-store sales growth, Hong Kong up by 1.2x, right? So that's equivalent to 120% growth?

That's Hong Kong/Macau together, yes.

Okay, okay. And so can you share with us the performance for the gold jewelry and the physical -- the fixed -- the -- price product for Hong Kong/Macau performance and China for the first quarter?

Actually, for the Hong Kong/Macau it's talking about by product, they have similar performance.

And for Mainland?

For Mainland market, it's actually mainly gold that's performing very well. And for fixed price jewelry it's low double-digit growth.

Okay, and the other question is that can you share with us how was the performance in the recent months? Because we noticed that the gold price, they corrected very quickly from maybe close to HKD 1,900 to right now below HKD 1,800. Do you see any upfront behavior change in the last 2 or 3 weeks?

In fact, normally, when gold price drops, we will see better gold performance. And then when gold price rises, we will see less sales of gold. So basically, the recent seen gold sales performance, I mean the good one is mainly arising from the better performance of gold sales, normally.

I see. Yes, we know that in China, right? The last of April and May, the base is relatively low compared to June. So do you see that China, for the June, the data, the performance, they show the moderation compared to the April and May? And how should we look at it for the next 1 quarter?

Actually, we are going to announce our first quarter sales performance in mid-July. So maybe it will be better for us to talk in detail when we announce the full first quarter figures in mid-July.

Okay. The last one is about the dividend. Because at least, the financial year will pay out 86%, right? And how should we look at your dividend policy going forward?

Now in fact, with our official policy, dividend policy would be 40% to 45%. And then normally, we pay around HKD 1 per share in a year. So basically, the additional 0.5 -- or HKD 0.50 was mainly -- I mean, in the announcements just now, is mainly for the celebration of 30th anniversary of Luk Fook's.

[Operator Instructions] Next question is [ Cora Li ] from [ Maple-Brown ]

Just a quick question, please. So given the decline in gold price in the second half, can you explain why the ASP increased in all the markets?

Oh, because the gold price -- actually, the average gold price increased by 25% when comparing to last year's average price. So basically, normally, you will see -- with gold price increase, we'll see all per unit price would increase as well. That's why, normally, with gold price rise, we see ASP rising everywhere. But then normally, we also see the quantity dropping.

And can you also comment on the ticket size of the product in Tier 4 and 5 cities where you have opened new shops?

Actually, for lower tier cities, you would expect that to be lower than the higher tier cities. But I don't have the details on [ Henna ]. I have to check that later on.

And my last question is how long do you think you can sustain that net addition of 350 shops per year? Thank you.

Actually, we expect our total number of shops to be at least -- our next stage is targeting 3,000 shops. So with maybe 300, 400 addition every year, we should expect maybe reaching 3,000 maybe next year or mid of next year. And then we would -- I guess we should target at more than 5 -- maybe at least 5,000 shops in a few years' time, yes. So we should expect us to have a net-net addition of 300 or -- to 400 every year in the up -- in the coming few years.

Our next question is Reuben from Bank of America.

Ron Nolan from Bank of America. So my first question is about the net opening of 350 stores this year. Are they all licensed shops? So would there be any self-operated stores in the 350 number?

Well, for there -- our open shops is mostly licensed shops, yes.

Yes, okay. I see. Is it possible to tell me about the -- like the revenue and profitability of single-store for typical license store in China now? So let's say, roughly, what's the monthly or annual revenue and the profit that they can make currently?

We don't disclose their revenue, but we've got a sales -- single sales information released every quarter. So basically, yes, nobody, you should expect the sales per shop higher than our own retail shops because they are normally located at better locations.

And also, like many of your peers are also expanding very quickly in the lower-tier cities. Like they are opening up a few hundred stores every year as well. Do you see any risk of rising competitions between you and your peers?

In fact, we see the -- we see a high potential for the manufacturing sector in mainland because of the expected population growth of middle class. So basically, you don't see many Hong Kong brands in those lower tier cities before. So basically, I think there's still room for Hong Kong brands to penetrate progress into those lower-tier cities for some years. And then, I guess, our market share would grow as well, together with the growth of the pie, the market pie for the mass luxury sector in Mainland. So basically, for the licensees in lower-tier cities, some of them are actually running both Chow Tai Fook and our brand. And basically, I think it will be good for them to run both brands or it would be good for a nearby location to see both brands play so that the customers can compare. So I get it's a good competition, actually, for Hong Kong brands.

Okay, but do you think the Hong Kong brands are taking market share from the domestic brands?

With such kind of penetration, we should expect that.

Next question is Chris Leung from Templeton.

As the time is running short, I'm afraid the following question will be the last question for the call. Thank you.

Kathy. I just had a question on government grant. What is your -- government grant seems to have increased a lot. What's the -- your thought for the government grant for this year? And then second question is, what is your observation on the annual inventory for your licensee right now? Are they relatively still low? Or are you already back to a more normal level?

For the government grant, are you talking about government subsidies?

Yes, because the...

We talk about government subsidies -- sorry?

The other income in the...

Yes, there are 2 types of government subsidies, government grants. And then, I guess, for the one aiming at helping people in the pandemic, this actually kind of increased by HKD 87 million. Yes, government, right...

It's also like a refund...

Yes, for the -- part -- and part of that will be VAT refund. So basically, for the government subsidies, in respect of the pandemic, actually something like an increase of HKD 87 million. And the one you've seen there in the nook side of the announcement is actually in relation to Hong Kong subsidies only. So for other markets, there were subsidies as well in response to the pandemic. So altogether, we see HKD 87 million increase in the subsidy fee in respect of the pandemic.

Right, so what about the VAT refund?

VAT refund was mainly because of the high demand for diamond products. That's why we have an increased import of diamonds to Mainland so that there will be a much higher VAT refund for that kind of imports.

I think this is the end of the Q&A session. So now I'll pass back the time to Koey.

Yes, thank you, everyone, and thank you very much for joining the call, everyone. Have a nice evening. Bye-bye.

Thank you. Bye-bye.