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

Ladies and gentlemen, welcome to Luk Fook Financial year 2022 Interim Results Announcement Call. I will now hand the session to Ms. Koey to begin today's presentation. Ms. Koey, please begin.

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 as speaker to talk about our financial year '22 interim results. We will go through the corporate presentation, which is already uploaded on to our corporate website, followed by the Q&A session. Now may I pass the time to Kathy for the presentation.

Okay. Thank you, Koey. Good evening, everybody. Thank you for joining our interim results conference call. I would like to start to look at our financial highlights, followed by financial review, and then our future plans and strategies. I believe you've got our corporate presentation already. So I would like to go through that with you on the phone now. Let's look at Slide 4, about the financial highlights first. The group's revenue recorded a growth of 67.2% to HKD 5.6 billion due to low base effects in the gradual recovery of retail atmosphere, with the turnaround of retail business in Hong Kong, Macau and Overseas markets, while Mainland market performed well in all businesses. The group's operating profit increased substantially by 101.5% to HKD 780 million, while profit attributable to equity holders increased by 124.6% to HKD 654 million. The basic earnings per share increased by 122% to HKD 1.11. Proposed interim dividend is HKD 0.55 per share, with dividend payout ratio of 49.4%, while last interim's dividend was HKD 0.50. During the period under review, the group has net increased 235 stores worldwide, well -- which were mainly Luk Fook licensed shops in Mainland. As at end of September 2021, including the sub brands, the group has 2,601 shops worldwide all together. Now let's go into details of our financial performance. With the significantly increased retail sales amount by HKD 1.8 billion, the group's revenue reported growth of 67.2% to HKD 5.6 billion. The overall gross margin decreased by 6.4 percentage points to 26.8% of gross margin of -- gold products returned to a relatively more normal level and the revenue mix of gold sales increased. Gross profits therefore increased by 35.1% to HKD 1.5 billion. On the other hand, benefiting from the operating leverage, total operating expenses to revenue ratio improved by 8.3 percentage points to 15.4%. Together with the significantly narrowed gold hedging loss from HKD 51 million to HKD 8 million during the period under review, the group's operating profit increased substantially by 101.5% to HKD 780 million. In addition, our strong cash position led to an increase of net interest income by HKD 24 million. A share of loss from an associate, also reduced by HKD 24 million under the improved market sentiment. Our profit attributable to equity holders increased by 124.6% to HKD 654 million, and the basic earnings per share increased by 122% to HKD 1.1. Our operating margin, maintained at a double-digit level, increased by 2.4 percentage points to 14%, while net margin increased by 2.9 percentage points to 11.7%. Now let's turn to Slide 7. The inventory level increased by 16.9% during the period under review to around HKD 8.1 billion because of the inventory needs in view of the improved retail sentiment and the expansion of licensed shops in Mainland. As the retail sales grew significantly, the average inventory turnover days declined by 265 days to 357 days when compared to the same period last year. On the other hand, the group's net cash decreased to HKD 2.1 billion because of the increase in inventory balance. ROE was 11.4%, which was 5.9 percentage points higher than the same period last year. Let's go to Slide 8 now. The group's NAV per share as at end of September 2021 was HKD 19.58, which was 8.1% higher than the same period last year. Now let's go to Slide 9. The group's displayed this year 123.2% growth in the overall net profit during the period under review. Operating margin and net margin were 14% and 11.7%, respectively, which were the second highest in our record of its interim results, while the overall gross margin returned to a more normal level. Now let's look at Slide 10 for all by market analysis. Revenue from the Hong Kong, Macau and Overseas markets increased by 112.6% to HKD 2.5 billion, which accounted for 44.1% of the group's revenue. The segment profit turned around from a loss of HKD 93 million since last year to a profit of HKD 120 million, which accounted for 14.4% of the group's total, while its segment profit margin was 4.9%. Improvements in profit contributed about half of the gross profit improvements in the period under review. In the Mainland markets, the revenue increased by 43.1% to Hong Kong HKD 3.1 billion, accounting for 55.9% of the group's total revenue. Its segment profits increased by 40.7% to HKD 715 million, accounting for 85.6% of the total. And its segment profit margin was 22.9%. Its improvement in profit builders another half of the gross profit improvement in the current period as well. Slide 11 shows our revenue and segment profits by business. The retail business remains as the group's primary source of revenue. As a result of the low base effects and an encouraging recovery of retail sentiment in various regions, the group's total retail revenue increased significantly by 102.6% to HKD 3.5 billion, accounting for 62.6% of the group's total revenue. The segment profit amounted to HKD 208 million, accounting for 24.9% of the total. And its segment profit margin was 5.9%. Attributable to the increase in number of licensed shops, the group's revenue from the Wholesaling business rose by 26% over the corresponding period last year to HKD 1.5 billion, accounting for 27.2% of the group's total revenue. Its segment profit increased by 46.9% to HKD 216 million, accounting for 25.9% of the total. Its segment gross margin was 14.2%. Licensing income increased by 39.6% to HKD 569 million due to the increase in number of licensed shops as well, accounting for 10.2% of the group's total revenue. Its segment profit margin was 72.3% while segment profit increased by 41.6% to HKD 411 million, accounting for 49.2% of the total. As the gradual fall from the historical peak in gold prices stimulated consumption and under the low base effect, sales amount of gold and platinum products increased substantially by 100.2% to HKD 216 billion, accounting for 51% of the overall sales amount. Actually out of the HKD 1.8 billion increase in retail revenue, gold sales contributed around 76% of that. However, its gross margin returned to a more normal level of 18.3%. Gross profit of gold and platinum products thus increased by 30.9% to HKD 470 million, accounting for 43.8% of the overall gross profit. On the other hand, sales amount of fixed price jewelry products rose by 48.5% to HKD 2.5 billion, accounting for 49% of the overall sales amount. Gross margin of fixed price jewelry products dropped by 2.7 percentage points to 24.5% because of the promotional activities for reducing slow-moving stocks. Its gross profit, as a result, increased by 33.6% to HKD 603 million, accounting for 56.2% of the overall gross profit. Now let's look at Slide 14 for performance in Hong Kong, Macau and Overseas markets. During the period under review, retail revenue from Hong Kong, Macau and Overseas markets increased by 130.9% to HKD 2.4 billion, which accounted for 97.1% of this total. The segment turned around from a loss to a profit of HKD 78 million, which accounted for 64.8% of the total, while its segment profit margin was 3.3%. In addition, because of the absence of sales of raw material gold in the current period, its wholesale business revenue decreased by 50.9% to HKD million, which accounted for 2% of the total. Its segment profit was HKD 19 million, which accounted for 15.7% of the total, while its segment profit margin was 38.9%. As the segment profit of wholesale business included the profit of inter-segment sales to self-operated shops, if including inter-segment sales in the denominator, its segment profit would be -- margin would be 2.8%. On the other hand, Hong Kong licensing income decreased by 4% to HKD 23 million, which accounted for 0.9% of its total. Its segment profit was HKD 23 million, which accounted for 19.5% of the total. Its segment profit margin was 101.2%. During the period under review, with the strong gold sales, retail revenue from the Mainland market increased by 60% to HKD 1.1 billion, which accounted for 33 point -- 35.3% of its total. Its segment profit increased by 55.8% to HKD 130 million, which accounted for 18.1% of its total. Its segment profit margin was 11.8%. Due to an increase in number of licensed shops, revenue of the wholesale business in the Mainland market rose by 32.8% to HKD 1.5 billion, which accounted for 47.2% of its total. Its segment profit increased by 24.4% to HKD 197 million, which accounted for 27.7% of its total. Its segment profit margin was 13.4%. As the segment profit of wholesale business included profit of inter-segment sales of self-operated shops, if including inter-segment sales in this denominator, its segment profit margin of wholesale business would be 12.8%. Licensing income in the Mainland market rose by 42.3% to HKD 546 million as a result of the increase in number of licensed shops as well, which accounted for 17.5% of the total. Its segment profit was HKD 388 million, which accounted for 54.2% of its total. Its segment profit margin was 71%. Now let's look at Slide 19 at our self-operated shops performance. During the period under review, the overall same-store sales growth of the group was positive 110%. same-store sales grew for Hong Kong, Macau markets, and that for Mainland markets were 109% and 89%, respectively. same-store sales growth for gold and platinum products was 120% and that for fixed price jewelry products was 91%. Due to the gradual fall in gold prices since its stimulated consumption, the flattish ASP, the revenue and quantity of gold and platinum products increased substantially in all markets, with continued growth of 132%. Furthermore, we see a successful strategy of refocusing more on high-end markets, as the fixed price jewelry products much increased and led to a substantial increase of 140% in retail sales amount of fixed price jewelry in Hong Kong and Macau markets. So it's quantity of single-digit growth. On the other hand, the retail business in Mainland market was mainly driven by strong gold sales, with a substantial increase in quantity, while ASP of gold products remained flattish. Slide 20 shows the same-store sales growth figures of self-operated licensed shops in different city tiers and regions in Mainland. Overall speaking, gold and platinum products performed much better than fixed price jewelry in Mainland China northeastern regions. The overall same-store sales growth of licensed shops was positive 37%, which was lower than the 89% of self-operated shops during the period under review because of low base effects as self-operated shops are mostly located at more problematic regions under the pandemic last year. Now let's look at Slide 23, at our total operating expenses. We have TOE of HKD 860 million, representing an increase of 8.3%. Its ratio to revenue level decreased by 8.3 percentage points to 15.4%. With the adoption of HKFRS 16, rental-related expenses, including rental-related depreciation of right of use assets, fixed variable rental and interest expenses amounted to a total of HKD 201 million, representing a 10% drop year-on-year. There were [ 74 ] shops in Hong Kong and Macau subject to rental renew in FY '22, accounting for around 60% of the total number of shops, 10 out of which were actually brought forward from last year for short-term lease of one year only because their landlords were unwilling to sign longer-term lease under the high rental reduction. The overall rent reduction during the period under review was around 6 -- 26%. It's highly likely that we'll still have double-digit drop of rental renewals for the full year, while that for last financial year was 33% reduction. Apart from the reduction on renewals, we have around HKD 9 million rental concession from landlords because of the pandemic during the period under review, while that was HKD 50 million, HKD 5-0 million, same period last year. At the end of September 2021, the group's inventory level went up by 16.9% to around HKD 8.1 billion. Nevertheless, as the retail sales grew significantly, as average inventory turnover days level declined by 265 days to 357 days, with the average inventory turnover days of gold products being 250 days and that of fixed price jewelry products leans at 469 days. In first half of financial year 2022, the group incurred CapEx of HKD 143 million, which includes HKD 100 million for acquisition of office in Shenzhen for supply showroom purpose. Now let's look at Slide 26. With the improvement in retail sentiment, CGS Group's loss substantially narrowed. In addition, as there was no further provision on financial guarantee contracts, the total loss reduced to HKD 6 million only. Now let's look at the group's future plans and strategies. More than 2 years ago, the group has set up its new 3-year corporate strategy, with supply chain management, Mainland market expansion and strategic growth as the 3 main focuses so as to foster its future business growth. In order to further enhance its competitive edge, the group will focus on strengthening supply chain management through various means. The group will revamp its supply chain management and identify right products, set right prices and offer products to market at the right time by implementing full automation, big data management and full integration in supply chain management; improving factory productivity; improving inventories turnover period; establishing strategic partnerships with suppliers; streamlining logistics and distribution and intensifying support to licensees, with the hope that all these would help promote business development and strengthen operational efficiency. We believe that customers increasingly focus on jewelry with unique design following the introduction of the DIY ordering service system in Mainland during the year under review, the group -- I mean, last financial year, the group has also launched the DIY system in Hong Kong and Macau this financial year. This will help the group to penetrate into the high-end market progressively. Let's look at Slide 30 now. To meet the customer needs of different profiles, the group actively created different sub brands and product lines. During the period under review, we have net added 3 Goldstyle shops. Slide 31 shows our expansion plan in FY 2022. As at 22nd November 2021, including new brands, we have a total of 2,658 shops worldwide. As at end of September 2021, the group had a total of 2,601 shops globally, including 200 -- 2,528 in Mainland, 48 in Hong Kong, 14 in Macau and 13 in overseas. The further -- better border restriction lifting in Macau, the group targets to net add 2 shops in Macau and one overseas licensed shop in this financial 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 prospects. Therefore, the group will focus its expansion in the Mainland market. The target for net addition of shops in Mainland for this financial year will be adjusted upward to around 50 -- 500 shops, which will remain in Luk Fook licensed shops in fourth- and fifth-tier cities. The group is committed to further developing its e-commerce business and strengthening cooperation with various e-commerce platforms in Mainland, and at the same time, it will also establish its own e-commerce platform, aiming to sustain the growth in e-commerce revenue at a target of 20% growth in this financial year. The CapEx budget for FY 2022 will be around HKD 400 million, which will be used for shop renovation, Nansha plant and office renovation, the 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 square meter and 33,000 square meter, respectively. Now let's go to Slide 32. In first half FY 2022, the e-commerce revenue increased by 56.8%. The revenue has accounted for 51.6% of the retail revenue in Mainland, with ASP increase by 16% to Hong Kong at RMB 1,500, while it accounted for 16.3% of the group's retail revenue. The group will continue committing to further enhancing synergy between online and off-line sales channels. We have also cooperated with livestreaming KOLs to increase brand awareness and group sales. Slide 33 shows our membership program. As at end of September 2021, the total number of members increased by 205% to approximately 3.2 million members. The members contributed 26% of the group's total revenue -- total retail sales. The members in Mainland, Hong Kong, Macau, Overseas markets increased by 241% and 130%, respectively, while the members contributed 20% of Mainland retail sales and 55% of Hong Kong, Macau and overseas retail sales. Let's turn to Slide 44 -- 34. The group also continued to capture the rapid growth of online marketing by various marketing activities on new media platforms. We may use some trending social media platforms, including RED, TikTok and e-sports to increase our brand exposure, to expand our footprint in the young consumer market. We expanded online sales by livestreaming by staff and KOLs and enhanced CRM via instant messaging apps to reach and engage with customers. We are now on Slide 35. To celebrate the group's 30 years anniversary, a series of promotional activities have been rolled out. In Hong Kong, the group held a lucky draw to give away more than 66 taels of gold and launched an online game to share the joy with the public. In Mainland, the group also organized gold bar lucky draw on major social media platforms, recorded over 300 million engagements and teamed up with RED to create a limited edition of Little Gold Potato gold ornament in Crystal form music box, which has effectively enhanced brand visibility and created hot topics. Let's go to Slide 36 now. The topics on anniversary promotion all together gained a total of 436 million views and 1.2 million discussions. The group also showed the creative video of Mr. Li Yi Feng, Luk Fook Jewelry's global brand ambassador, on the glasses-free 3D screen in Chengdu. The Vivid 3D effect as if Li Yi Feng was giving out a diamond ring in person attracted a large number of the public to the site. To conclude, the same-store sales of the group is a turnaround to a positive growth, indicating that the group's business has restored growth gradually. The same-store sales in Hong Kong and Macau markets recorded growth of approximately 35% from 1st October to 21st of November 2021, while the overall group same-store sales of the Mainland market, including both self-operated and licensed shops, recorded a growth of approximately 20% in the same period. Subject to developments of the COVID-19 pandemic, it is believed that there will be a slackened growth in second half of the financial year as compared to the first half due to a higher base. Nevertheless, with the gradually relaxed border restrictions, the Hong Kong and Macau businesses are expected to have a continuous improvement. The middle-class population in Mainland will expand gradually under the common prosperity policy and with the double circulation policy so that the consumption will be further encouraged. The group therefore remains optimistic about the mid- to long-term business prospects. Accordingly, the group will still focus expansion in the Mainland market, particularly the markets in fourth- and fifth-tier cities and looks forward to having further interest in its business in the future. 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] First, we have Ms. Lina from HSBC.

Kathy, I have 2 questions. First question is regarding your store opening in China. So you increased that to 500 for the year. What's the visibility on that? How many new stores are in your pipeline? And also, in your 3-year business plan, right, your plan was to open 150 per year. So given you have opened 500 this year, what's your plan -- likely plan for the next year? So that's the first question.

Okay. Now actually, we -- the 3-year plan was set more than 2 years ago with our target of adding net-net 150 shops each year. But actually, you can see from our previous record, and in the first 2 years, we have already exceeding 150 all the time in the first 2 years. So this is the last financial year for that 3-year plan. Then in the first half, we have already added -- net added 200 and -- 230-something shops already. So basically, with a queue of more than 1,000 at the moment, so that's why we are very confident that by end of this financial year that -- to be ended the 31st March 2022, we will be able to net added around 500 shops all together, I mean, for the full year -- full financial year. So basically, it's highly likely that we would increase the mix, the additional targets in the next 3-year plan, that has to be started in -- sometimes in early 2022. So basically, I think we should expect our net additions maybe around 400 to 500 each year for the coming few years because right now, we've got only 2,500 shops all together. So basically, I think when you look at the room for the expansion, actually, still a lot there in Mainland markets because of the expected middle-class population growth and the domestic consumption strengthening. So basically, the pie would grow larger and larger. And for the mass luxury sector, I think it will be benefited from that kind of -- I mean, the common prosperity policy and the double circulation policy. So that's why, I guess, for us, maybe our next target, we'll be talking about maybe 5,000 shops, and then we can consider the next step after that.

Okay. I have a second question, like regarding the China wholesale and the licensing revenue growth in first half. So comparing with the growth in the number of POS of licensing shops, it was 24%. And your wholesales was up by 33% and the licensing was up -- licensing revenue was up by 43%. So could you give us further analysis? What's the contribution of new licensing shop opening to wholesale's revenue growth and licensing revenue growth? So for example, like when you open a new shop, how much do they procure from you at wholesales? And for licensing, when you open a new licensing shop, how much do they -- like how much of the procurement was like -- was authorized by you? So you take license fee income. And what is the average take rates like for licensing revenue in first half?

In fact, when we look at the licensing income, normally, in the past, we may have something like around 15% of that coming from new shops. I mean we talked about new shop, normally, we talk about shops opening -- opened within one year. So basically, for this current period, actually, we've got the contribution from -- I mean, in terms of licensing income, the mix from the new shops actually increased to 20%. And all together, you will see kind of -- that's why we've got 40-something percent increase all together for the income. And then when you look at the wholesale revenue, actually, most -- or parts of that will be coming from the diamond sales because our factory mostly produce diamond. And of course, there will be another minor part, we are talking about hard gold products that's Gostyle. So basically, when you look at the revenue growth for the fixed price jewelry in our record, you can see that actually in Mainland market, with something like flattish or a little bit drop for the licensed shops. So basically -- I mean, in terms of fixed price jewelry. So that's why you can see that the wholesaling revenue actually increased not as high as the licensing income. So that's the reason what we saw from -- because of the different sales product mix in the wholesaling and licensing business.

Okay. That's very clear, Kathy. Just to follow up, like you mentioned new shop revenue contribution for licensing revenue in first half this year is 20%. What was the percentage contribution in first half FY '21?

It's talking about 20 -- that's around only 14%.

Okay. Got it. what was like the take rate for licensing income? Like I remember you collect like a loyalty income, right, based on procurement or certified sales. So what is the average take rate?

Yes. So basically, for the licensing income, normally, because when they first open a shop, they need to buy a lot of inventory. So based on that inventory, they purchase because we charge royalty income when they purchase, not when they sell. So basically, when opening a new shop they would need to pay us a licensing income on all the purchases of inventory.

Next, we have Mavis from DBS.

Kathy, congratulations on your good results. I have a few questions here. Yes. I hope to check with you -- they are very simple questions actually. For October, November, in terms of same-store sales growth trend for Hong Kong, Macau, China, how has it been in terms of self-operated stores and franchise stores, respectively? And what about the sales trend of gold and gem sets, respectively? This is my first question.

Well, so specific. Actually, because it's still a very short period of time, so I think it's not really that representing -- representative. That's why normally, we won't talk about the details for those periods of time. And then actually for the -- we say that for -- we always talk about the low base effects. And then for the second half, there will be a higher base than the second -- than the first half. And then -- and the highest base will be in the January to March quarter. So you can see that the base will actually grow higher and higher month by month. That's why you can expect that our October performance will be better than November performance. And then in subsequent months, you will see a lower growth, something like that. And then you're talking about the self-operated shops and licensed shops performance, I think for the Mainland market, it's now maybe similar, I mean, for both of them, not -- their performance won't be too much -- won't have too much difference. And of course, when you talk about by products, still it will be gold driven in Mainland. And then in Hong Kong, Macau markets, it's still having a similar performance for gold and fixed-price jewelry.

I see. So could -- with that, could we just wrap up very quickly in terms of our latest guidance or targets in terms of same-store sales growth or profitability for the second half of this financial year? More color will be very much appreciated.

Actually, we still expect a growth, but the growth will be much smaller than the first half. But you have to tell -- it's hard to qualify actually, because there will be a lot of uncertainties going forward, like the cross-border restrictions, would that be uplifted in -- we don't know the how -- the extent of that. So it's hard to forecast actually. But we should expect over -- speaking for the full year, there should be still -- still be double-digit growth.

Right. What about your -- like operating margin? Do we expect some improvement from the first half into the second half?

In fact, I guess for the full year, we still enjoy the operating margin because when we talk about the revenue growth with some -- by 60-something percent, so when you look at the rental, it's actually a drop. And then for all other expenses, it's actually, the increase -- I mean the costs increased by only maybe something like high single-digits. So basically, I guess the operating margin would still -- I mean, the operating leverage will continue in the second half, and then we would benefit from that in terms of margins.

Right. And Kathy, maybe on e-commerce, actually, how is the performance on the Singles Day? And the -- in terms of profitability, could you remind us how is the margins of e-commerce at like operating level compared to group level?

Are you talking about -- the performance on Double 11?

Yes, yes. Singles Day, yes, Double 11.

Actually, for Double 11, nowadays, is a period of time. And then I think when we look at that, it's not much different from the other periods of time this year. It's -- the impacts, I think it's phased out, and then it's just like ordinary times. And then when we look at the margins of e-commerce, actually, it's becoming very similar to those physical shops margin. In terms of -- gross margin has been always similar because of same pricing strategy for both online and off-line. And then for operating margin, at the beginning years, it's higher than the physical shops. But when -- after the various platforms, try their best to increase their income, so that means that the cost -- we have to bear the additional costs like for the promotional activities, that kind -- A&P, that kind of costs, so that the operating margin for both online and off-line are becoming similar -- I mean at similar level nowadays.

Right. And just last question because if you look at the segmental margins, for China, it was 22.9%. And that edged down very slightly year-on-year. So would it mean that such a level would be probably peaked out already for the medium term for China? So going forward, we probably will rely a little bit more on top line growth?

In fact, I think for Mainland market, it's been quite stable actually nowadays. And they've got -- but then -- it depends then -- it actually sometimes becoming -- sometimes become more serious. In some certain regions of time, that will hit the retail performance, local level. But overall speaking, I think for the Mainland market because they don't have that much base difference as what we see in the Hong Kong, Macau market. So I guess they should have something like a steady performance, a much more steadier performance than the Hong Kong, Macau market.

That's good to know. At least we have a lot of room for Hong Kong market margins.

Should be, yes. It all depends on the cross-border restrictions, how they release that -- or relax that.

Next, we have Linda from Macquarie.

The first one, I just want to check that you -- what about the gross margin outlook into the second half? Because we saw that in the first half, the gross margin down by more than 6%. So how should we look into the second half? So that's my first question.

I guess, actually, the gross margin for gold has been too high in the past year because of the continuing increase in gold prices. But after the peak, actually, it gradually dropped to a more -- gradually dropped from the -- I mean, from August, the peak was August to -- I think. So basically, that's why we -- nowadays, you can see our gross margin for gold products goes back to something like 18% as a much more normal level. So I guess we should see kind of -- this kind of level if the gold price won't fluctuate too much in the second half. So we always talk about gold prices fluctuation would affect the gross margin in shorter periods of time than longer term because the -- so normally, we see a higher volatility in the first half and then a more stable annual gross margin for gold products. So basically, I guess, hopefully, we would see something like similar level of -- similar -- mid-teen to high-teen kind of gross margin for gold sales in the second half. So basically, for the overall, gross margin is 20-something. So that's a more normal level as well. So hopefully, if the gold price -- our gross margin for gold products won't fluctuate too much, then we will have a similar overall gross margin for the group as a whole in the second half.

The other question is regarding for the recent Hong Kong performance. Because the -- last week, we also saw that -- your peer, they also announced their same-store sales growth. But obviously, Luk Fook noticeably outperformed peers. So I just want to know that what is the reason behind this -- the big outperformance for Hong Kong?

In fact, I will explain the difference of performance of Hong Kong, Macau markets and our Mainland market in terms of the fixed price jewelry. So when you look at the quantity, actually, for both Hong Kong, Macau and Mainland markets, it's not really that volatile. But then when you look at the ASP for fixed price jewelry in Hong Kong is kind of a more than -- Hong Kong, Macau market is more than double. And in Mainland, it's all -- something like flattish. So basically, actually, in last financial year, by -- in second half actually, we have already changed our strategy to focus on the kind of low -- good value for money type of process. We try to be focused more to the high-end products, high-end markets because our ASP has been dropping for quite number -- quite some years because of the strategy of -- I mean for the strategy target hinting at the big trend of Mainland markets, I think -- that's talking about people buying jewelry for office wear or daily wear purpose. So we have tried to offer a good value for money type of products in the market for quite some years. And then last year, after kind of a continuing drop of ASP for some years, we thought that it's maybe time for us to refocus more on the high-end market, that's why we launched different campaign to encourage the frontline to sell more high-end products and high-value products. And we work very well in Hong Kong, Macau market. That's why I consider it good ASP increase in fixed price jewelry in Hong Kong, Macau markets, although the quantity won't change that much. But I mean in Mainland market because people are so fond of gold sales -- gold products, and they focus on buying gold. And since that -- so that's why for the gem-set jewelry, I mean, the fixed-price jewelry products, we don't see much volatility in terms of both their ASP and quantity.

So that's also the reason why like October until now, the Hong Kong, Macau, up by 35%, still quite strong, right?

Yes.

Okay. Do we have any of the guidance for the Hong Kong market for the second half, I mean in terms of the same-store sales growth?

Well, it's hard. And -- because we've got a very high base in January to March quarter. So basically, it's really hard for us to forecast or to give a guideline for that. It's really hard. But of course, we -- I think we would -- we should expect it to be a much lower growth than the first half all together for the second half.

Okay. But still can be positive, right?

Hopefully, yes, hopefully. Because it all depends on whether the cross-border restrictions can be relaxed in a greater extent.

Okay. Lastly is about CGS, the 3D goals, right? We see the big loss narrowed in the first half. So how should we see this business into the second half and even beyond FY '22? Any chance that we can see that not just only for the breakeven, but they can have a decent profitability?

I think they -- there will be -- actually, they've got some kind of profits in some months, but not all the months, and then -- because their business are now mainly in Mainland China and they've got only a few shops in Hong Kong. And then -- so basically, if the Mainland -- the pandemic situation in Mainland is good enough from them, and then I guess, they would have like better performance in Mainland markets. So -- because they've been profitable in Mainland business. So basically, if the Mainland business is growing well and the market sentiment there is good enough, then there will be a possibility that they would turn around.

Next, we have George from JPMorgan.

I have 2 questions. Firstly, on your licensing income. I recall that like 2, 3 years ago, you mentioned, the license -- that you actually charge about 9% on a blended basis for those gold products for your licensees sourced from third parties. I'm not sure that whether this 9% is stable or you actually have a little bit decline over the past 6 months?

In fact, that 9% is actually a blended percentage. That's because we charge royalty income on both gold and fixed-price jewelry. So for gold it's lower, and then for fixed price jewelry, it's higher. So all together, it's around 9%. So it should be something like that. I mean, quite stable.

So it is still 9% this year, right?

Yes, something like that. But that's on their purchase, not on their revenue.

Yes, yes. On their purchase, yes, correct. Okay. And my second question is about your fixed price jewelry. May I ask that how much of -- we think this -- on category, how much is gold products for your first half of this fiscal year?

Sorry. The fixed -- fixed price jewelry, how much of that is gold products?

Gold product. Yes.

I think for fixed price jewelry, let me see. So for -- overall speaking, it should be something like -- you're talking about the kind of pure gold, hard gold products. So hard gold, maybe 30 -- around 30% of the fixed price jewelry, yes, 30%.

Around 30%. And could you remind us on what's the ratio?

That's talking about the retail part.

Retail part, yes. And could -- also, it's not including the franchisees, the parts, right? Only, your retail stores?

Yes. This is our retail mainly. The percentage I'm talking about is talking about the retail shops, our own retail shops all together.

Your retail shops? I see. Do you have any idea about what's the ratio for your -- the licensed shops?

Well, for the licensed shops, it should be something like -- I think for the licensed shops, it's even higher. It's talking about something like 50%, yes.

50%. Understood. And could you remind us what's the ratio -- the similar ratio in the same period last year, like first half of fiscal year '21, what's the gold products account for the...

You're talking about last financial year, same period of time for the read -- for self-operated shops, is talking about maybe something like 45%. So basically, the -- yes. So it's lower in the -- is lower percentage actually in the fixed-price jewelry this year for the gold products, gold-related products. And that's -- and then for the licensed shops, it's actually something like 46%. So for licensed shops, it's an increase. Last -- in last financial year, same period, they sell something like 46%, for the hard gold, pure gold and the [indiscernible] gold.

I see. And for -- sorry, to clarify, for retail, it was like 45% last year and this year, it's 30%?

For self-operated shops, yes, it's 45% last year and 30% -- around 30% this year.

Next, we have Tiffany from Citigroup.

I am sorry. I was just muted. Kathy, my question is on the GP margin of fixed-price jewelry products. I think the margin -- GP margin continued to decline. And then compared to last year and 2 years ago, it declined from over 30% to below 25% now. What is the reason behind? And what is the outlook for the GP margin for the fixed price?

In fact, we have explained that already. Because actually, the decline was mainly because of the promotional activities going on for reducing the slow-moving stock in the fixed price jewelry.

So this continues in the first half...

Not really. A lot depends on whether we've got a lot of slow-moving inventory to be cleared. We only do that once in a while.

And -- okay. So have you completed these slow-moving inventory clearance?

Yes.

Okay. And is there any difference between the high -- higher-end product versus the regular product? You mentioned you will focus more on the higher-end products.

Normally, for us, actually, the higher -- high-end products would enjoy lower gross margin than lower-end products because of the negotiation power of the customer.

So that's because of the product exchange for the GP margin to come.

Bits of flat, yes.

So what is the outlook going forward? Will it continue to decline due to the product margin?

Well, I think it should be something like -- I mean, the current one is 20-some -- 20-something percent. So basically, it should be more or less that kind of level.

As there are no further questions, I will now hand the session back to you. Please go ahead, Ms. Koey.

Okay. We come to the end of our conference call. Thank you, Kathy, and thank you very much for joining the call, everyone. Have a nice evening. Bye-bye.

Thank you. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.