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

Ladies and gentlemen, thank you for standing by, and welcome to the Luk Fook Group Fiscal Year 2023 Annual Results Announcement Presentation. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Joanne Ho. Please go ahead, Joanne.

Thank you, Ray. Good evening, ladies and gentlemen. Thank you for joining us for our investor and analyst presentation to discuss our annual results for the financial year 2023. I'm Joanne Ho with Luk Fook Investor Relations department, and I'm joined by Dr. Kathy Chan, Executive Director and CFO of the group. As usual, we will go through the corporate presentation materials, which will be synchronized with the webcast, and it also has been already uploaded onto our corporate website. After that, we will go into Q&A. You can ask questions through chat bot or dial-in. We encourage participants to dial in to facilitate a more engaging and interactive Q&A session. Now I would like to turn it over to your presenter today, Kathy?

Thank you, Joanne, and good afternoon, ladies and gentlemen. Thank you for joining Luk Fook 2023 annual results presentation. I would like to start with looking at our financial highlights, followed by financial review and then our future plans and strategies. The details are recorded in the corporate presentation, which has been uploaded to our website. Let's look at Slide 4 about the financial highlights first. The group's revenue increased marginally by 2%, maintaining around HKD 12 billion. Operating profit decreased by 4.1% to HKD 1.6 billion. The profit attributable to equity holders and basic earnings per share were HKD 1.3 billion and HKD 2.19 billion respectively, representing a decrease of 7.7% and 7.6%, respectively. Furthermore, the proposed final dividend and annual dividend were HKD 0.55 per share and HKD 1.1 per share, respectively with a dividend payout ratio of 50.3%. As at end of March 2023, the group had a global network of over 3,100 shops, a net growth of 296 shops. Now let's go into the details of our financial performance. The group achieved a broadly flat result in first half of FY 2023, although we had a low base in the second half of the year, resurgence of pandemic in the third quarter, caused business performance to fall far below our expectations. Fortunately, the group's business regained momentum in the fourth quarter of FY 2023 when the pandemic situation has stabilized, stimulated by the gradually relaxed anti-pandemic measures and fully reopened orders amongst Hong Kong, Macau and Mainland. The retailing business in Hong Kong and Macau resumed to its normalcy, bringing the group's business back on track. Therefore, during the past financial year, the group's revenue experienced a slight increase of 2% at HKD 12 billion. The overall gross profit margin slightly decreased by 0.6 percentage points to 27% because of the increase in gold sales mix due to a strong demand. The group's gross profit was, therefore, almost flat at HKD 3.2 billion. Operating profit decreased by 4.1% to HKD 1.6 billion and operating profit margin declined by 0.8 percentage points to 13.2%. This was due to the reduced government subsidies relating to VAT refund because of reduced import of diamonds to Mainland resulting from the lackluster diamond sales performance there. Furthermore, during FY 2023, with declining interest rates for fixed deposits in Mainland, the group took steps to reduce its Hong Kong bank loans or Hong Kong dollar bank loans in order to minimize interest expenses in the high interest rate environment. This resulted in a significant reduction in time deposits in Mainland, which in turn led to a notable decrease in net financial -- finance income of 50.8%. Therefore, net profit lowered by 7.7% to HKD 1.3 billion with a double-digit net profit margin at 10.7%. Profit attributable to equity holders decreased by 7.7% to HKD 1.3 billion as well. When comparing to the pandemic year of FY 2019, the top line of FY 2023 was 24.5% lower and the bottom line was 13.9% low. However, it's just comparing the fourth quarter of FY 2023, the same quarter of FY 2019, the performance was very close. Therefore, we target to achieve pre-pandemic performance in the upcoming year. Slide 7 shows that we maintain a final dividend of HKD 0.55 per share and an annual dividend of HKD 1.1 per share with dividend payout ratio of 50.3%. Our official dividend policy is actually a payout ratio of 40% to 45%. Please note that annual dividend per share of FY 2019 was HKD 1.15, which is higher than the current normal level of HKD 1.1 with payout ratio at its official rate of 45%. Now let's turn to Slide 8. The group maintained a healthy inventory level being flat at around HKD 8.8 billion. We expect a higher inventory level in the upcoming year due to the recovery of the business. The average inventory turnover days increased by 22 days to 378 days due to sluggish demand in Mainland and lengthened turnover days of diamond products. Despite this, the closing inventory turnover days decreased by 8 days to 380 days. During the past financial year, bank borrowings decreased by 72.4% to HKD 540 million, and they were mainly gold loans. It's worth noting that our net cash increased by 17.6% to HKD 1.8 billion, mainly due to less CapEx. We had a double-digit ROE of 10.5% for the year under review. At the end of March 2023, total assets decreased by 8% due to the depreciation of renminbi and the reduction of cash and bank balances under the group's proactive repayment of bank loans. Nevertheless, total equity increased by 1.2% to HKD 12 billion. Therefore, the net asset value per share as of the year-end increased by 1.2% to HKD 20.8. As you can see on Slide 10, all our gross margin, operating margin and net margin remained at quite a stable level in the past 3 years. Let's look at Slide 11 for revenue and segment profit by market. Revenue from the Hong Kong, Macau and overseas market increased by 30.9% to HKD 6.6 billion, accounting for 55% of group's revenue. This increase was mainly driven by the strong gold demand and rebound of local consumption in Hong Kong and overseas markets and the return of Mainland tourists after reopening of borders between Hong Kong, Macau and Mainland, especially in the fourth quarter. Segment profit for this market also saw significant growth soaring to HKD 577 million with a 209% increase, accounting for 33.5% of the group's total. With the resurgence of COVID-19, the strict anti-pandemic measures involved with a slower recovery in consumer sentiment as compared to Hong Kong and Macau, the revenue from the Mainland market dropped by 19.6% to HKD 5.4 billion, accounting for 45% of group's total revenue. The segment profit dropped by 26.6% to HKD 1.1 billion, accounting for 66.5% of the total. Because of the effect of mixed performance in Hong Kong, Macau and overseas markets and Mainland markets, the group experienced a slight increase in overall revenue with a slight decrease in segment profit by 2%. Slide 12 shows our revenue and segment profit by business. Retailing business was the main source of revenue of the group along with the favorable gold sales and benefiting from the significant improvement in tourist traffic and spending in Hong Kong, Macau after reopening of borders, the group's retailing revenue increased by 18.4% to HKD 8.8 billion with the recovery of retail sales in Hong Kong and Macau as segment profit increased significantly by 8.5% to HKD 682 million, accounting for 59.6% of the group's total. Although the number of licensed shops increased, the group's wholesaling revenue decreased by 30% to HKD 2.2 billion due to sluggish demand for diamond products in Mainland, where wholesaling revenue mainly arising from sales of diamond products. This accounts for 18% of the group's total revenue. The segment profit further decreased by 37.4% to HKD 265 million, accounting for 15.4% of the total. With slower pace of expansion than prior year and shrinking diamond demand in Mainland, licensing income decreased by 15.9%, HKD 1.1 billion accounting for 8.8% of the group's total revenue. Segment profit margin was 73.7%, while its segment profit decreased by 19.5% to HKD 176 million, accounting for 45% of the total. Now let's look at the product analysis on Slide 13. Because of the strong demand in gold products, there was an increase of 24.6% in sales of gold and platinum products to HKD 6.9 billion, accounting for 63% of the total sales. Please note that the sales amount does not include licensing income. Its gross margin was almost flat at 17.4%. This gross profit, therefore, increased by 22% to HKD 1.2 billion, accounting for 49.4% of the overall gross profit. Please keep in mind that this gross profit excludes gross profit of license income from the consolidated gross profit of the group. On the other hand, sales amount of fixed-price jewellery products decreased by 18.5% to HKD 4 billion accounted for 37% of the overall sales amount due to sluggish demand of diamond products, especially in Mainland. However, the gross margin fixed-price jewelry products increased substantially by 4.9% to 30.3%. This is mainly due to reduced discounts over to customers and upward adjustments, retail selling prices because of the increasing replenishment cost to fixed-price jewellery products. This gross profit therefore decreased by 2.7% only to HKD 1.2 billion, accounting for 50.6% of the overall gross profit. Now let's look at Slide 15 for performance in Hong Kong, Macau and Overseas market. Retailing revenue from the Hong Kong, Macau and Overseas markets increased by 32.5% to HKD 6.5 billion, accounting for 98.3% of these markets total and 54% of the group's total. Its segment profit increased significantly by 275.5% to HKD 549 million, accounting for 95.2% of these markets total and 31.9% of group's total with a segment profit margin of 8.5%. On the other hand, the wholesaling revenue decreased by 17.3% to HKD 105 million, accounting for 1.6% of this market's total and 0.9% of the group's total. The segment profit decreased by 31.6%, HKD 10 million, accounting for 1.8% of these markets' total and 0.6% of the group's total, while its segment profit margin was 9.9%. As the segment profit of wholesaling business included the profit of inter-segment sales to self-operated shops, including inter-segment sales in the denominator, its segment profit margin would be 0.5%. Apart from that, Hong Kong licensing income decreased by 34.1%, HKD 16 million, accounting for 0.2% of this market's total and 0.1% of the group's total. The segment profit was HKD 17 million accounting 3% of this market's total and 1% of the group's total, and the segment profit margin was 106.5%. For the Mainland market, it's mostly affected by the pandemic and along with the slower recovery of consumer confidence, its retailing revenue decreased by 8.7%, HKD 2.3 billion, accounting for 42.8% of the Mainland market's total and 19.3% of group's total. The segment profit declined by 38.5%, HKD 133 million accounting for 11.6% of Mainland market's total and 7.7% of group's total. The segment profit margin was 5.7%. Despite the increase in the number of licensed shops, the lackluster sales of diamond products, which was the primary source of revenue for wholesaling business in Mainland market, of course the 30.8% revenue declined to HKD 2 billion, accounting for 38% of Mainland market's total. The segment profit declined by 37.6% to HKD 254 million, accounting for 22.2% of Mainland market's total. Segment profit margin was 12.4%. As the segment profit of wholesaling business included profits from inter-segment sales to self-operated shops, if including inter-segment sales in the denominator, its segment profit margin would be 12.1%. Due to the impact of the pandemic, addition of new licensed shops in Mainland was less than prior year. Together with reduced demand in diamond products, licensing income decreased by 15.6% to HKD 1 billion, accounting for 19.2% of Mainland market's total and its segment profit decreased by 19.1% to HKD 159 million, accounting for 66.2% of Mainland market's total and the segment profit margin was 73.2%. Now let's look at the retailing revenue analysis on Slide 18. The gross retailing revenue in Hong Kong increased significantly by 57.9% to HKD 4.2 billion for the year, as I explained before, for reasons I explained before. And overseas market also performed remarkably well with retailing revenue increased by 29.7% to reach HKD 0.6 billion. Due to the outstanding performance of overseas markets -- the overseas shops, the group will accelerate the opening of new shops in overseas markets. However, as a result of the resurgence of pandemic, the retailing revenue from Hong Kong Mainland decreased by 6.2% and 8.7%, respectively. From the slide, you can also see that the growth of retail revenue was mainly driven by increase in gold sales in nearly all markets. Slide 19 shows the achievements of our e-commerce business in Mainland. E-commerce revenue increased by 7.5% to HKD 1.5 billion and accounted for 63% of retailing revenue in the Mainland and 16.6% of the group's retailing revenue with ASP increased by 6.7% to HKD 1,600. Let's move on to next slide and take a look at the performance of self-operated shops. The overall SSSG of the group was positive 24%, with SSSG for Hong Kong and Macau market at positive 34%, a negative 17% for the Mainland market. [indiscernible] sales of gold and platinum products performed much better than fixed-price jewellery products. The group's SSSG for gold and platinum products was positive 35% and plus 2% of fixed-price jewellery products for the full year. Slide 21 shows the same-store sales growth figures for self-operated and licensed shops in different city tiers and regions in Mainland. As mentioned before, Mainland was mostly affected by the pandemic with slow recovery. The overall SSSG of Mainland was negative 17% for self-operating shops and negative 8% for licensed shops, which performed a little bit better than self-operated shops under a relatively lower base. Now let's turn to Slide 25. The TOE increased by 3% to HKD 1.9 billion, representing 15.6% of revenue. Given a little slower growth in revenue, the TOE's revenue ratio was 0.2% higher than FY 2022. Increase in TOE was mainly driven by the payroll and miscellaneous retailing related expenses. We have certain new renewals out of 60 shops in FY 2023. The overall renewal reduction was 25%. Within the 20 [ SSSG ] rental renewals, 12 of them were actually brought forward from the year before under short-term lease of 1 year. There are leases of 36 out of 51 shops to be renewed in FY 2024 and 12 of them are actually 1 year term leases from prior year. We have reached 6 renewals done by end of May 2023 with overall rental increment of around 20%. And when you look at this slide, you can see that we have all together around HKD 421 million total rental expenses in FY '23. And then it's around 10% below the level in FY 2022 and it's actually around 50% of the level of rental expense -- total rental expenses in FY 2019, this is predominant level, that's around HKD 785 million. And then let's look at Slide 27. We did have significant CapEx in FY 2023. And after the year-end, the group purchased an office in Wuhan were around RMB 40 million to meet the needs of its business expansion. And in response to our business development, we have been continuously investing in offices located in Shenzhen IBC in recent years. These offices not only service both -- as both back office for the group, but also showrooms for our suppliers, which centralizes them in 1 location to facilitate easier purchase and replenishment for our licensees. With the popping up of the trends with reasonable purchase price and favorable investment return, the group purchased a hotel in IBC for around RMB 470 million in May 2023, and this hotel acquisition helps the group to enjoy synergy with the licenses procurement center at IBC as there has been substantial increase in [indiscernible] in the area with the significant increase in supplier showrooms. We want to emphasize that the group has no plans to expand its business into the hotel industry. Now let's look to Slide 28. The total losses in relation to investment in operating activities in HKRH and subsidiaries narrowed to HKD 22 million. And then let's turn to the group's future plans and strategies. And we look -- we may look at Slide 30 now. To foster our future business growth, the group has developed such a 3-year corporate strategies before the commencement of FY 2023 with Mainland market expansion, branding and operational efficiency as our 3 main focuses. Slide 31 shows our network expansion. Due to the pandemic resurgence and strict anti-pandemic measures, our shop expansion in Mainland was delayed. As of end of March 2023, we had a total of 3,105 shops globally with a net addition of 296 shops. We have over 3,000 shops in Mainland, 45 in Hong Kong, 15 in Macau and 15 overseas. With the reopening [ exposes ] Hong Kong, Macau, Mainland, Mainland visitors are coming back to Hong Kong. Therefore, we plan to net add 5 shops in Hong Kong especially in tourist areas and 10 shops overseas in the upcoming year because of the outstanding performance of overseas shops in FY 2023. And 5 of that, some will be licensed shops and 5 of them would be self-operated shops. In the Mainland market, we remain optimistic about our mid- to long-term business prospects and we focus on expansion there, aiming to net at 300 local shops and 50 sub-brand shops in the upcoming year, there will still be -- and there will still be mostly licensed shops in the fourth and fifth tier cities. In addition, our e-commerce business revenue increment target is 10% in FY 2024 due to the high base. We strengthened cooperation in various e-commerce platforms in Mainland and the establishment of our own platforms, we expect sustainable growth in our e-commerce business. The CapEx budget for FY 2024 is expected to be around HKD 750 million, which will be used for premises purchases, shop renovation and office renovation, purchase of equipment and premises, including the already done acquisition of hotel and office premises in May 2023. Slide 32 provides an overview of Lukfook distribution network in Mainland. As of end of March 2023, we had a total of 2,862 Lukfook shops with a net addition of 215 shops during the year under review. As we have mainly focused on opening licensed shops in the fourth and fifth tier cities in recent years, number of shops in fourth and fifth tier cities accounted for 39% of the total, followed by fifth tier cities, which accounted for 30%. In terms of regions, we had the highest number of shops in Southern China, which together accounts for 28.3% of our total number of shops there, followed by Northern China, which accounted for 27.3%. The total retail sales value, including self-operated and licensed shops as well as e-commerce, slightly decreased by 2% in Mainland. In terms of the city tiers, first-tier cities accounted for 34% of the total, followed by fourth and fifth-tier cities accounting for 32% of the total retail sales value in Mainland. If we divide them by region, Southern China accounted for 37% and followed by Northern China, which accounted for 26% of the total. Now, let's look at Slide 33. In order to enhance our competitive edge, the group aims to improve its operational efficiency by revamping supply chain management, implementing full automation, big data management and data analytics systems. We will also strive to maximize employees' productivity by cultivating and nurturing cultures of continuous improvement and innovation. Let's look at Slide 34 now. To further strengthen our brand image and positioning, we will commit to leveraging innovative approaches in making use of various media. In addition, we are working to enhance our product quality assurance, optimise service quality, improve support for licensees and adopt a multi-brand and/or line strategy to offer products that meet market needs. We are also taking a holistic approach to seize the development opportunities in the middle-class, wedding and generation Z markets by understanding customers' spending habits. We will continue to attract customers and encourage local consumption through visual merchandising enhancement, cross-selling boosting and VIP promotion activities to improve sales and profits. Given the importance of social media in product promotion, we are allocating more resources to various online media and net apps, including RED, TikTok and Bilibili to reach out to target customers and catch up with online marketing trends. We are also exploring the enhancement of all the offline shopping experience and possibility of cross-over collaboration with other industries or brands to further enhance synergy between our online and off-line sales channels. Last but not least, we recognize importance of environmental protection and change and the increasing awareness of environmental protection among stakeholders including consumers. As a result, we are setting a long-term goal of carbon neutrality and implementing measures to reduce carbon footprints of our business to enhance our contribution to environmental protection. Now let's look to the group's branding promotion. We have integrated strategies to attract our customers and aim to forge the high customer loyalty. We are committed to providing our customers with the unique and memorable shopping experience. That's why we recently introduced the various new shop images aiming at attracting customers of middle class from different segments. This new shop images will help us better connect with our customers and provide them with a more engaging shopping experience. Actually, we have some new shops established in Tsim Sha Tsui and Causeway Bay area already. So if you have time, you may go to visit those shops to see how we have upgraded the shop images. We invested in a variety of online marketing activities aiming at reaching customers in different cities and regions. This initiative include participating in exhibition and organizing nearly 1,000 pop-up stores and roadshows across various cities. To celebrate the group's milestone of approaching 3,000 shops, we rolled out the Share Love and Fun Anniversary Promotion campaign covering a series of online and off-line activities, which achieved exposure to a total of more than 690 million viewers. We are always looking for new ways to increase our market exposure and connect with our customers. That's why we've collaborated with several online media and apps like RED, TikTok and Weibo to expand our reach. One example of this collaboration is our Love is Beauty collection, where we featured celebrity Kelly Yu in a live stream on RED. This partnership allows us to engage with our audience in a more personalized and interactive way while also showcasing our products and strengthening our brand image. We launched series promotion to celebrate Chinese New Year as well. This promotion will hold success resulting in over 100 million views of our Weibo trending topic. We've upgraded our CRM to Social CRM, which allows us to track customer spending patterns across various channels. This upgrade has formed the foundation of our we-media strategy, which is aiming at creating more personalized and engaging content for our customers. At the end of March 2023, our membership base has grown to over 5 million, with members contributing 60% of total retail sales. We believe that this growth is a testament to the strength of our brand and our ability to connect with our customers at a deeper level. We've been working with some reputable partners to expand our brand exposure. We recognize that Generation Z's great interest in games, particularly mobile games and e-sports. That's why we've created the KPL Champion rings for 12 consecutive seasons, which has allowed us to penetrate the market of Generation Z. We've also been a continuous sponsor of medals for the Hong Kong and Beijing marathons, which is our way of honoring our marathon [ brandness ] while promoting sports culture and raising our brand awareness among the middle class population. This has been an effective way for us to enhance brand communication and connect with our target audience. First, the low base effect on the reopening of borders among Hong Kong and Macau and Mainland in the fourth quarter, [indiscernible] Hong Kong and Macau was on its way to normalcy. Together with the promising gold sales and recovery of local consumption is, SSSG was being maintained a positive growth in the year under review. The momentum of recovery in Hong Kong, Macau continued in the first quarter of FY 2024, with SSSG for approximately positive 70% from April to June 2023, but somewhere around flat for Mainland. The pandemic that caused global disruption is behind us. All walks of life are in gradual recovery. However, the macroeconomic outlook especially in Mainland remains uncertain. The group will continue to move forward and be dramatic in expanding our business in Hong Kong, in Mainland and overseas with the view to restore our pre-pandemic performance in the upcoming year. This concludes my presentation, and thank you for listening.

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

[Operator Instructions] So the first question is, what impact do you expect the uncertain economic outlook in Mainland China to have on the group?

Sorry, impact on certain economic outlook in Mainland?

Yes, Kathy.

Is that the question?

Yes.

Certain economic -- actually, the macroeconomic condition in Mainland is not that good, and then especially the property market is not really recovered and quite weak at the moment. So normally, if the property market is weak, it would actually affect the sentiment -- the consumption sentiment in the region. So basically -- and then we know from various sources, we noted that the savings in Mainland is actually still increasing, so that's the contrary to our expectation. Actually, we know that during the pandemic period, actually, the savings rate increased and savings increased a lot in Mainland, and we expect there would be kind of revenge consumption after the pandemic there, but actually, it did not happen. So basically, that's why you can see a slower recovery in Mainland as comparing to Hong Kong and Macau markets. So that's why I think for the Mainland market, we still need to wait a bit to see a real recovery. But at this moment, we don't see a very clear [ pinch ] on that yet. So we hope that the central government would -- actually, the central government is doing a lot of work to encourage consumption or domestic consumption, but I think we have to wait and see the real impact of that. So basically, we are more optimistic on the coming performance of the Hong Kong and Macau and Overseas markets than our Mainland market.

Thank you, Kathy. So next question comes from teleconference call. It's from Mavis Hui from DBS. .

I have to check with you, as you mentioned just now about financial performance in January to March this year, more or less catching up with the pre-COVID level already. So what about the performance trends for April to June so far? And then my second question is that, could we have some color on our same-store sales growth guidance for Hong Kong, Macau and Mainland China, respectively, for the current financial year? And what about the outlook of our gross margin and EBIT margin this year? And my third question is that on e-commerce because our revenue is seeing a decelerating pace of growth over the years on a bigger base. So what are the plans for us to help reenergizing the segment?

Actually, we have mentioned about the recent April to -- 21st June performance in various markets just now. We can see that actually, the -- in Hong Kong, Macau markets, we got something like positive 70% same-store sales growth, that's a very impressive one. Remember that it's actually quite a high base. We've got 100-something present SSSG in the quarter of April to June in 2023 -- sorry 2022, that's why I think it's quite promising for Hong Kong, Macau markets in terms of SSSG growth in the first quarter already. So basically, I think we can expect quite a good growth for -- there is double-digit growth for Hong Kong, Macau markets. And then for the Mainland market in April to 31st June, we got something like around flattish there, and it's actually already better than the negative growth in FY '23, so we hope to see a gradual recovering performance in Mainland in the future. So all together, I think that we should expect a kind of a double-digit growth for the SSSG in FY 2024. And then actually, we always like to emphasize that actually because when we look at the latest results and we compare to the -- I mean, the latest performance except actually in the fourth quarter of FY 2023 is quite close to FY 2019 same quarter, so that's why we actually target to restore the pre-pandemic performance. So I can't -- I think we can use the FY 2019 as a reference point, for our expect -- our target performance for FY 2024. And then for e-commerce business, actually, during the last financial year, our -- originally, we have a target of 20% revenue growth. But in fact, we have only 7.5% in terms of Hong Kong dollar, but actually something like 14% in terms of renminbi. And then the main reason for the lower growth than our target because of the serious pandemic there as well. So -- and then for the upcoming year, our target growth is around -- it will be 10% for the e-commerce business because it's now having quite a high base or radius comparing to a few years ago. So actually, when we look at the recent performance actually is a bit -- is better than 10%, but we don't know the month after that. So basically, I think the 10% target should be a realistic one for the e-commerce growth in FY 2024.

Right. I think you mentioned earlier that we will do a little bit more for the Hong Kong, Macau market in terms of online sales. Is it possible to give us a little bit of update on that as well?

Yes. We are on our way to establish a e-commerce platform in Hong Kong. But actually, we have online business on HKTVmall already for quite some years, but it's quite a minimal business. So basically, we don't expect that to be helping lots in terms of growth for the retailing revenue in Hong Kong, Macau market. But I guess we may use this as a foundation to extend to overseas customers in future in terms of online business. So we are now at a kind of an initial stage for establishing our online business in Hong Kong and markets away from the Mainland market.

Our next question is from webcast participant whose name is [ Michelle Chen ]. Her question is, can you please kindly give us your thoughts on guidance of: one, SSSG in ML versus Hong Kong and Macau; two, margin trends for both markets.

Actually, I just mentioned about the good performance in first quarter already, I mean April to June. So basically, we should expect kind of double-digit growth in FY 2023 for Hong Kong, Macau markets. And for the margin trend, I think actually when you look at -- we have -- we shared a slide about the past 5 years' margin trend there, and we've got something like quite stable one, actually, in terms of gross margin, operating margin and net margin in the past 3 years, and we always emphasize on the quiet -- kind of stable margin in our business. So we should expect our margin to be quite stable actually especially with the operating margin and net margin as shown by the past history. And then when you look at the revenue trend or the profit trend, I guess you should take a look at the figures in FY 2019, that should be a target for us internally and maybe as a reference for investors as well.

Thank you, Kathy. Next question is from teleconference participant, whose name is Lina Yan from HSBC.

My question is a follow-up to the April to June trend. Yes, you have shared the same-store sales with us, but could you share with the RSV growth in Mainland China in the April to June period? And specifically, what was the performance for gold and non-gold, respectively?

Well, actually, we are going to announce our first quarter performance in mid-July. And that's why I think it's not too appropriate for us to talk about the April to June quarter figures, so -- in such a detail at this moment. So maybe you can wait a bit for our announcement in mid-July for such level of details. Sorry about that. .

Okay. No worries, Kathy, but like my -- the reasons for me to ask the question are 2. So first is you mentioned in your annual results because of like a decline in demand for diamond products, your wholesale in China and the royalty income declined. I'm wondering if that will be the same trend in FY '24, so this is the first question I want to ask. And second question I want to ask is like how you see your performance versus the market. The market, I mean the China retail sales for jewelry and watch retail sales growth in April and May. Yes.

In fact, for Hong Kong, Macau markets, we can see the positive growth for the diamond or fixed-price jewellery there, kind of double-digit growth there for both same-store sales and Y-o-Y figures. And then for Mainland, actually, for Mainland, I think -- for Mainland, I think it's still a bit difficult at the moment. So we don't see there any kind of recovery of the diamond sales in Mainland yet, but we have already seen kind of recovery in Hong Kong, Macau markets for fixed-price jewellery. So we should expect a better performance in Hong Kong, Macau markets as comparing to Mainland market in FY 2024, especially in diamond.

Cool. So we understand is still uncertain if the Mainland China like diamond sales growth while in Q1, we can grow in FY '24, right?

Yes. And then actually, when you look at -- we normally compare to our peers. And when you look at FY 2023 or 1st -- I mean, the major one, Hong Kong brands, they experienced similar downtrend of diamond sales in Mainland as well.

Sure, sure. And how about my second question, how was the performance in Mainland China on a group basis versus the overall market? Of course, you are not commenting on the specific numbers, but you have seen the industry number and your own number. Have you been growing faster or in line?

I guess -- I don't have very exact figures at the moment. I guess we are in a quite similar trend with the -- I mean, with the macro market situation.

Our next question is from webcast participant, whose name is [ David Gabriel ]. His question is, the company has lowered its store expansion in China for 500 new stores per year to 350 now. Is this the new level of expansion per year we should expect going forward? Or will the company look to open 500 stores per year from fiscal year 2025 onwards?

Actually, when we set our 3-year plan before commencement of FY 2023, we -- because at that moment, the situation in Mainland not that bad, so we have set up a target of 500 shops net-net addition every year in coming in the 3 years -- within the 3-year plan, but actually, total [ fee ] will be with our first year. And then we experienced a kind of delay in expansion because of the COVID situation, so we reduced the expansion to the target of 350. And then because of the expected close -- closure of shops, I mean, it's more than before because of the pandemic. That's why we cannot afford getting a net increase of 350. So for FY 2024, the situation should be better than FY 2023, but we are becoming more conservative. I think we guess expected to set a more conservative target of 350 rather than setting a higher target, but our actual plan for that would be actually more than 350, so we would work hard on achieving the target of at least a minimum of 350 in FY 2024.

Our next question is also from webcast whose name is [ Tony Lee. ] And his question is, could you provide some color on the financial performance of our franchises? Are they healthy enough to set up new stores and replenish their inventory?

I think because there is a long queue there for the opening of new shops, so we believe they are fine actually. And then when you look at some of them, actually, they performed quite well, and we always talk about setting minimum inventory level for the license because they are not financially -- financially as strong as ourselves. So that's why we set the cap for our self-operated shops, but minimum for the licensed shops because we're afraid they don't have enough inventory rather than having too much, so we don't worry about their inventory level at all. They normally have a healthier inventory level than our own shops.

Thank you, Kathy. The next questions are from [ Andrew Mackie ] He had 3 questions. The first one, to what extent is ASP in fixed price jewellery being cut due to competition? Are peers discounting aggressively? Or does the change reflects more the microeconomic environment?

Three questions already? I can't hear the first question very clearly. Can you repeat once more, the first question?

Actually, that's the first part of his 3 questions. The first part is to what extent is ASP in fixed-price jewellery in cuts due to competition?

I see. That's the first one. How about the second one?

The second one is second part of the first question is our peers discounting aggressively? Or does the change reflect more of the microeconomic environment?

Okay, how about this one.

There are 2 more questions coming after that.

Maybe I answer the first 2. Talking about the ASP on fixed-price jewellery when you look at our gross margin in FY 2023 actually has been up by 4.9%. So basically, because we have less discounting, and we have just upward our retail selling price because of the increasing replenishment cost. So that's why, actually, we should -- we don't think we need to really cut that much. I mean, decrease the ASP for the fixed-price jewellery. And then when you look at the ASP for, let me see, the Hong Kong and for -- let me say, the Hong Kong market actually is on a kind of an increasing trend. And then actually, when you look at the peers discounting, I think the peers as such with the Hong Kong brand, they are becoming more disciplined nowadays because they have more concern on the profitability rather than revenue. I mean, more concern on profitability nowadays as well. So that's why we don't -- I don't think there will be really very serious discounting going on there. Yes. So what's the third question?

The next one is with regards to the Shenzhen hotel, what are the long-term plans for this asset and how much capital is required in total to purchase, renovate and operate it?

For the hotel, actually, the investment cost was something like RMB 460 million and we don't really need to invest more like too much in every year, I think we may need around RMB 10 million for kind of maintenance for the hotel. So we don't expect a very much -- I can't -- any material in that -- additional investment into that hotel.

Thank you, Kathy. The next question is from David Gabriel. His question is, you suggest FY '19 as the reference point for FY '24. Is that on top line only? Would profit margins be higher in FY '24 than FY '19, given higher licensing income in Mainland and stronger operating leverage in Hong Kong market, given lower rental costs. So if revenue is in line with FY '19, should profits be higher than FY '24?

In fact, kind of FY '19 is our target performance base would be something like a ballpark figure only. Of course, we don't really look at the margin too much. We really look at the absolute figure, absolute number instead of the margin. So that's why I think when you split that into details between regions, we should expect the retail -- I mean, the Hong Kong, Macau market to contribute more than the Mainland market in terms of growth for FY 2024. So there will also be a kind of a mixed performance between the Hong Kong, Macau markets against the Mainland market in FY 2024, but we hope to see kind of an overall performance for the group together, achieving the level in FY 2019 in terms of revenue and profit.

Thank you. Next question is from [ Chang Wa Shin ]. His question is, what is the single store model of the company's direct stores and franchise stores?

You mean single store means the economic of single store in -- for self-operated and licensed shops?

I repeat the question.

I don't understand the question.

Okay. Shall we move on to the next question? Or should I repeat the questions again?

Maybe you repeat. I don't quite understand.

Okay, sure. I repeat the question.

Please [indiscernible] from [ Linda ].

The next question is from Linda Huang. What is the rationale of the hotel acquisition? Is this from connected transaction?

Oh no, this is from a third party, there's a landlord of the IBC building and then it's not connected transaction at all. And then actually, the reason for buying that hotel because of popping up of a chance of reasonable price and quite good return. And then it actually helps us to enjoy synergy because we have a lot of licensees visiting the area for the replenishment because we have centralized all those suppliers -- the showrooms in that location, so that's why that hotel acquisition will be kind of a synergy with our existing business. That's why we decided to take it up. And actually, the room number is not that many. It's only 160 room, kind of size hotel. Not a very big one.

Thank you, Kathy. Our next question is also from Linda Huang. The market is getting competitive and promotional. How will they impact our margin?

Sorry, the market is getting what?

Competitive and promotional. How about the impact of margin?

We actually -- we are really -- we have kind of a quite stable policy on our spending on the A&P and we normally spend around 1.1% A&P on revenue every year. We've been able to control that kind of spending quite well in the past years.

Yes. Thank you, Kathy. As time is running short, and I'm afraid that the following questions will be the last question. Can you share the monthly SSSG for the 2 markets during the first quarter FY 2024?

Yes, we will share that in mid-July when we have an announcement out, but not now, it is too detailed at the moment.

Thank you, Kathy, and thank you very much for joining the call, everyone. Have a nice weekend. Goodbye.

Thank you, everybody. Bye-bye. .