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 2024 Interim 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.

Good afternoon, everyone. I'm Joanne Ho from the Fook IR team. Welcome to our Financial Year 2024 Interim Results. It is a great pleasure to speak with all of you again today. Joining me this afternoon is Dr. Kathy Chan, Executive Director and CFO of the group, who will get you through our interim performance and our strategy for the second half of the year. Then I will open the Q&A session. The conference will be conducted in English, and the presentation materials is available now on our website. Now may I pass the time to Kathy for the presentation.

Okay. Thank you, Joanne. Good afternoon, ladies and gentlemen. Thank you for joining our interim results presentation. I would like to start by looking at our financial highlights, followed by financial review and then our future plans and strategies. Let's look at Slide 4 about the financial highlights first. Revenue reached HKD 7.5 billion, a 34.3% increase compared to the same period last year, mainly benefited from the full reopening of orders amongst Hong Kong, Macau and Mainland, with the recovery of the retailing business in Hong Kong, Macau markets as the growth engine of the group. The group's retailing revenue surged by 55.7% to HKD 6 billion, accounting for 80.5% of the group's total revenue, primarily driven by the sales of gold products. The increase in the mix of retailing revenue has resulted in an overall gross margin increase of 1.7 percentage points to 27.8%, with the gross profit amount rose by 42.9%. Despite the substantial reduced subsidies from the Hong Kong and the Mainland governments, the ratio of the total operating expenses to revenue improved by 0.8 percentage points to 14.3%, resulting in a 39.3% increase in operating profit to HKD 1.1 billion. Profit attributable to equity holders increased by 43.3% to HKD 0.9 billion, which is the second highest interim performance in our history. Now let's look at Slide 5. The basic earnings per share increased by 43.8% to HKD 1.61. Furthermore, the proposed interim dividend was HKD 0.72 per share, with a dividend payout ratio of 45%. As at end of September 2023, the group had a global network of 3,289 shops, a net growth of 184 shops. Now let's go into the details of our financial performance. The global market remained challenging against the backdrop of heightened geopolitical risks worldwide and the macroeconomic uncertainties. However, with the full reopening of borders amongst Hong Kong, Macau and the Mainland, and a continuous improvement in retail sentiment in Hong Kong and Macau, the retailing business of the group has returned to normalcy, driving the group's satisfactory double-digit growth in total revenue. The net margin increased by 0.8 percentage points to 12.6%, which, in fact, is the second -- the record high in our history. And the profit attributable to equity holders increased by 43.3% to HKD 942 million, marking the second-highest interim performance in the group's history and only a bit behind the performance of gold rush for financial year of 2013-'14. When comparing to the pre-COVID year, financial year 2019, the group's revenue is almost there, while the bottom line is well above that by 41.7%. We have declared an interim dividend of HKD 0.72 per share with a dividend payout ratio of 45%, which is in line with our official dividend policy of payout ratio, 40% to 45%. On Slide 9, it shows the group held a record high but healthier inventory level at around HKD 9.4 billion as at end of September 2023. Benefited from the outstanding performance of gold sales and the recovery of retailing business in Hong Kong and Macau, the average inventory turnover days decreased by 60 days to 318 days, and the closing inventory turnover days decreased by 52 days to 328 days. We have net cash of HKD 1.1 billion, with decline mainly due to inventory increase and property acquisition. It is noteworthy that our ROE increased by 4.6 percentage points to 15.1% for the period under review. Now let's go to Slide 10. The group's NAV per share as at end of September 2023 was HKD 21.21, 1.9% higher than last March year-end level and 25% higher than the pre-COVID level. Now let's look at Slide 12 for the performance analysis by market. Revenue from the Hong Kong, Macau and overseas market increased by 66.6% to HKD 4.8 billion during the period under review. It accounted for 64.5% of the group's revenue. Its segment profit soared to HKD 667 million with 157% growth, which accounted for 54.3% of the group's total. Due to the lackluster macroeconomic conditions and the continued sluggish demand for diamond products in the Mainland market, its revenue remained flattish at HKD 2.7 billion, accounting for 35.5% of the group's total revenue. Its segment profit dropped by 5.9% to HKD 561 million, accounting for 45.7% of the total. With the recovery of business in Hong Kong and Macau markets, it contributed again more than half of both revenue and profits to the group's business. While we are waiting for the rebound of the mainland market, we will temporarily shift our focus more towards driving business in the Hong Kong, Macau and overseas markets, so as to mitigate the impact of the weak Mainland markets. Slide 13 shows the revenue and segment profit by business. During the period under review, retailing business was the main source of revenue of the group. Benefiting from the significant improvement in tourists traffic and spendings in Hong Kong and Macau after reopening of borders, coupled with the favorable gold sales, the group's retailing revenue increased by 55.7% to HKD 6 billion, accounting for 80.5% of the group's total revenue. Its segment profit increased significantly by 137% to HKD 663 million, accounting for 53.9% of total and its segment profit margin was 11%. On the other hand, despite the increase in number of licensed shops, the group's wholesaling revenue declined by 21.4% to HKD 911 million due to the continued sluggish demand for diamond products in the Mainland, accounting for 12.2% of the group's total revenue. Its segment profit decreased by 6.2% to HKD 174 billion, accounting for 14.2% of the total and its segment profit margin was 19.1%. 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 at a normal level -- a more normal level of 7.5%. Moreover, licensing income remained flattish at HKD 546 million, accounting for 7.3% of the group's total revenue. Its segment profit margin was 71.8%, while its segment profit remained flat at HKD 392 million, accounting for 31.9% of the total. Now let's look at the product analysis on Slide 14. In spite of a yearly increase of 12% in the average international gold price in U.S. dollar per ounce, the demand for gold products remains robust. Consequently, sales of gold and platinum products increased by 55.4% to HKD 4.86 billion, accounting for 70% of the overall sales amount and became the key driving force for the group's retailing business. Its gross margin increased by 3.8 percentage points to 19.1% as a result of the increase in gold prices, while gross profit of gold and platinum products increased significantly by 94% to HKD 926 million, accounting for [ 50.5% ] [sic] [55.4] of the overall gross profit. On the other hand, the sales of fixed price jewelry products increased by 9.3% to HKD 2.08 billion, accounting for 30% of the overall sales amount. Nevertheless, due to the increased mix of retailing revenue, which has higher gross margins than wholesaling, gross margin of fixed price jewelry products increased by 5.9 percentage points to 35.9%. Its gross profit, therefore, increased by 30.5% to HKD 747 million, accounting for 44.6% of the overall gross profit. Now let's look at Slide 16 for performance in Hong Kong, Macau and overseas markets. Retailing revenue from the Hong Kong, Macau and overseas markets increased by 67.4% to HKD 4.7 billion, accounting for 98.2% of these markets' total and 63.4% of the group's total. Its segment profit increased significantly by 169.7% to HKD 569 million, accounting for 85.4% of these markets' total and 46.3% of the group's total, which is a segment profit margin of 12%. On the other hand, given the increase in sales to corporate clients, the wholesaling revenue increased by 10.3% to HKD 65 million and its segment profit increased by 80.5% to HKD 76 million. Apart from that, due to the addition of 4 overseas licensed shops during the period, Hong Kong licensing income increased by 251.2% to HKD 21 million. And its segment profit increased by 233.2% to HKD 22 million. Now let's look at Slide 17. For the Mainland market, despite the lackluster macroeconomic conditions, driven by the robust growth of e-commerce business, its retailing revenue experienced satisfactory increase by 23.9% to HKD 1.3 billion, accounting for 48.5% of Mainland market's revenue and 17.2% of the group's total. Its segment profit increased by 36% to HKD 93 million, accounting for 16.6% of Mainland market's total and 7.6% of the group's total. Its segment profit margin was 7.2%. Due to the continued sluggish demand for diamond products in the Mainland market, its revenue of wholesaling business, which primarily focuses on diamond sales, decreased by 23.1% to HKD 845 million, which accounted for 31.8% of Mainland market's revenue and 11.3% of the group's total. Its segment profit decreased by 31.5% to HKD 98 million, accounting for 17.5% of Mainland market's total and 8% of the group's total. Its segment profit margin was 11.6%. As the segment profit of wholesaling business included the profit of inter-segment sales to self-operated shops, if including inter-segment sales in the denominator, its segment profit margin will be 10.9%. Licensing income decreased marginally by 2.3% to HKD 524 million, which accounted for 19.4% -- 19.7% of Mainland market's revenue and 7% of the group's total. Its segment profit decreased by 3.9% to HKD 370 million, accounting for 65.9% of Mainland market's total and 30.1% of the group's total. And its segment profit margin was 70.6%. So as you can remember, although the Mainland market licensing income had some decrease or decline in revenue and profits, but because we have incremental licensing income coming from our overseas licensed shops, so that's why when we look at our group's total licensing income, it's actually kind of a little bit growth of 0.5%, something like that. And the profit is kind of flattish. So the overseas markets' expansion actually is helpful in offsetting or mitigating Mainland market's unfavorable condition. So in Slide 20, it shows the achievements of our e-commerce business in Mainland. The e-commerce revenue significantly exceeded the original target growth of 10% for this financial year, which increased by 33.1% to HKD 873 million during the period under review. It accounted for 67.89% of retailing revenue in Mainland and 14.5% of group's retailing revenue. Its ASP increased by 6.3% to RMB 1,700. Let's move on to the next slide and take a look at the performance of our self-operated shops. The overall same-store sales growth of the group was positive 44%, with SSSG for Hong Kong, Macau market at positive 56% and negative 4% for the Mainland market. Overall speaking, both sales of gold and platinum products and fixed price jewelry products performed well due to the strong recovery in Hong Kong and Macau market. The group's SSSG for gold and platinum products was positive 44% and positive 45% for fixed price jewelry products. Now let's look at on Slide 26. Here, we can see that our total operating expenses increased by 27.3% to HKD 1.07 billion, representing 14.3% of the revenue. The TOE to revenue ratio improved by 0.8 percentage points as compared to the same period last year. We had 36 renewals out of 56 shops in Hong Kong, Macau in current financial year, with 21 done in the first half. The overall renewal increment was 22%. We've seen the 36 renewals program were actually brought forward from last year under a short-term lease of one year as the latest rental expense is around 36% below the pre-COVID level, while [Technical Difficulty] revenue is almost there. We believe that the group's performance would continue to be benefited by operating -- from the operating leverage for quite a while. Now let's go to Slide 28 for the CapEx in the first half of FY 2024. The significant increment in CapEx was because of acquisition of office premises in Wuhan at HKD 42 million to meet the business need and acquiring of 6 floors of premises intended for future expansion of our procurement hub in Shenzhen IBC area at HKD 512 million. We do not expect any significant CapEx in second half of this financial year. Let's look at Slide 29 now. During the period under review, total losses in relation to the investments and operating activities in HKRH and its subsidiaries increased by HKD 9.1 million to HKD 31.1 million due to their unsatisfactory operating results. It is worth noting that after the acquisition of the CGS Group's 50% interest in June 2014, the group entered into sale and purchase agreements with certain major shareholders of HKRH to acquire 50.49% shares of HKRH in July 2023, which is expected to be completed by mid-December '23. Now let's look at the group's future plans and strategies. At the beginning of FY financial year 2023, that's last financial year, actually, we have already set up its brand new 3-year corporate strategy with Mainland market expansion, branding and operational efficiency as our 3 main focuses to foster our future business growth. Slide 32 shows our network expansion plan for FY 2024. As at end of September 2023, the group had a total of 3,289 shops globally with a net addition of 184 shops. We have 3,204 shops in Mainland, 50 in Hong Kong, 16 in Macau and 19 in overseas. For the Hong Kong market, we have already added 5 shops in Hong Kong tourists areas and 4 shops overseas in the first half of this financial year. For the Mainland market, the annual target for net addition of Lukfook shops remains at 300 shops, mainly focusing on opening licensed shops in fourth and fifth-tier cities. As for the development of new brands, the group aims to achieve a net addition of 50 shops in the Mainland, mainly for licensed shops. The good news is that we don't intend to change the total number of net addition targets for this financial year. For the overseas markets, the group is optimistic about the immense growth potential and intends to actively allocate more resources to expand its footprint across the world. We plan to open 5 licensed shops and 5 self-operated shops in financial year 2024. Furthermore, the sales growth of e-commerce business is expected to exceed the original target growth of 10% for this financial year significantly. The CapEx budget for FY 2024 is expected to be around HKD 750 million. Now let's look at Slide 34. To strengthen our competitive edge, the group plans to enhance operational efficiency through the transformation of supply chain management, the implementation of complete automation and the adoption of advanced systems for big data management and data analytics. We are also committed to maximizing employees' productivity by cultivating and nurturing cultures of continuous investment and innovation. Now let's look at Slide 35. The group continuously strengthens its brand image and positioning. Additionally, it enhances product quality assurance, improves service quality, optimizes support for licensees and adopts a multi-brand/line strategy to meet market needs. Following the launch of various sub-brands or product lines, Goldstyle, Lukfook Joaillerie and Heirloom Fortune, the group launched a sub-brand Love Lukfook Jewellery in May 2023, in order to appeal to the younger generation. The group will persist in penetrating and targeting the middle-class, wedding and Generation Z markets while seizing development opportunities. Now let's shift to the group's branding promotion. We have integrated strategies to attract target customers and aim to forge a high customer loyalty. To enhance brand awareness and recognition among our target customers, we have implemented a variety of celebrity promotion campaigns, including both short and long term. These campaigns aim to increase brand visibility and establish stronger connections between our various brands and product collections. We introduced various new shop images and extend the unparalleled shopping experience to exhibitions and roadshows to further exploit local consumption. We rolled out the Endless Blooms and Endless Love online and offline campaign to promote wedding series, which achieved total exposure of more than 380 million views. To celebrate the group's anniversary, we launched the Share Love and Fun of AI campaign covering a series of online and offline activities, which reached exposure of 1 billion views. In appealing to Generation Z consumers, we collaborated with trending intellectual IPs to jointly develop and launch products. For example, we jointly launched gold jewelry products with NetEase Games, collaborated with IP, The Land of Warriors by Tencent, to launch a gift set of golds and figurines based on the hottest character, Baby Wu. Last but not least, we sponsored and made the KPL championship rings for 15 consecutive season. To increase our brand exposure to target customers, we have actively collaborated with reputable partners to co-organized promotion activities. For example, we collaborated with Meitu app and launched special photo effects and offered exclusive giveaways of exclusive diamond rings for Chinese Valentines Day. On the other hand, we collaborated with Conrad Hotel and launched afternoon tea sets to attract middle-class customers. We have upgraded our CRM to a social CRM, enabling us to monitor customer spending patterns across multiple channels. We held nearly 10,000 VIP workshops this year. At the end of September 2023, our membership base increased by 37% to reach 6 million, with members contributing 65% of total retail sales. Members spending rose by 33% compared to the previous year. This achievement demonstrates the strength of our brand and our ability to establish deep connections with our valued customers. We are grateful for their ongoing support, which has been instrumental to [ in-house effect ]. In July 2023, we launched the VIP Thankful Month campaign exclusively for our members. This can be integrated online and offline marketing strategies. By offering deeper discounts, conducting exciting lucky draws and providing additional member points, we aim to drive sales and increase customer engagement. Furthermore, we leveraged interactive communication of new media platforms and collaborated with other industries to boost our brand's visibility and create buzz. This helped us generate more attention and increased brand awareness. Effective sustainability governance is one of the key factors in driving long-term success of the group. Therefore, we continuously optimize our ESG management systems, commit to integrating ESG principles into our corporate planning and operational decision-making process. We were honored to have received 15 awards as the testament of our commitment to the society in this financial year. In addition, the group has signed its first sustainability-linked loan of HKD 326 million with DBS Hong Kong Limited. The loan included revolving credit facilities with interest rate linked to the group's sustainability performance against the agreed set of KPIs. Moreover, the group opened a new eco-concept shop in The Wai, a brand new shopping mall, which sets to become a new landmark market in Tai Wai, Hong Kong, with green elements in its design, although the group has partnered with Friends of the Earth in launching the Carbon Reduction in Green Forests' program. Besides, the group will set up a long-term goal of carbon neutrality to enhance the group's contribution to environmental protection. During the period under review, despite the relatively high base effect in the second quarter, the overall same-store sales growth of the group maintained double-digit growth, in which same-store sales in Hong Kong and Macau are much improved due to the higher visitor traffic generated after the reopening of borders amongst Hong Kong, Macau and Mainland. On the other hand, notwithstanding the lackluster macroeconomic conditions and a decline in same-store sales growth in the Mainland market, the robust growth of e-commerce business helped offset its negative same-store sales growth. The consumer spending momentum in the Hong Kong and Macau market continued to maintain subsequent to the period under review. Although thanks to the low base effect, there was over 50% same-store sales growth during October and the first 3 weeks of November 2023. On the other hand, same-store sales growth for Mainland market, including both self-operated and licensed shops remained flattish with a double-digit growth in the first 3 weeks of November alone. Since the demand for diamond products remain subdued in the Mainland, the group will continue to actively promote non-diamond fixed price jewelry products, especially fixed priced gold products in order to enhance the performance of fixed price jewelry products. With the continuous improvement in the tourism industry and macroeconomic conditions, a strong growth momentum is expected to maintain in Hong Kong and Macau. Coupled with the low base effect in the third quarter in this financial year and anticipated benefits from operating leverage, the group is looking forward to exceeding pre-pandemic performance and strive to a new height. This concludes my presentation, and thank you for listening.

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

[Operator Instructions] Our first question from the line of Mavis Hui of DBS.

Kathy, Joanne, this is Mavis of DBS. And congratulations on your very strong results as well. So, I've got few questions here. Is it possible to actually share with us some updates on our latest same-store sales growth for both China and Hong Kong, Macau in October to November, respectively? Maybe I'll ask other questions a bit later after this.

In fact, like Hong Kong, Macau markets, we have the announcement -- we have stated in announcement that it's over 50% same-store sales growth. Actually, a very strong one. In fact, of course, November is a very low base month. So for November itself, it's a much better figure than that, of course. And for Mainland, actually, you can see that we've got something like flattish for self-operated and licensed shops altogether during the period from 1st of October to the 21st of November. But then for November alone, it's a kind of a double-digit growth because of the low base.

Right. And given the strong results so far, do we have plans to actually revise our full-year guidance on sales growth and margins for the current financial year?

In fact, we have a slight guidance change at the end of the outlook section. In our announcement, we talk about exceeding the pre-pandemic performance and strive to new heights. That's our new guidance.

Right. So, we are expecting record high performance for the full year? Great. And...

In fact, when you look at the first half results, it's actually the second highest in our history. And then the highest -- the record high was in FY 2014. And when you look at 2014, that's the full year as a high and interim record high as well in FY 2014. But when you look at the full-year performance in FY '14, actually, in the second half is a lower level than the first half, mainly because the gold rush actually happened in the first half of that year. But in normal circumstances, the second half would be better or the share of high mix of performance than the first half. So for this financial year, because it's a normal -- quite a normal one, to be a kind of a normal -- more normal situation, so we should expect the second half to at least comparable to the first half result, if not better.

That's excellent. And lastly, can you also share the latest trend on gross margin and operating margin for October to November so far? It would be good to get a sense of it.

In fact, we -- I think we should not expect the gross margin to fluctuate too much for this year because we have the increasing retailing revenue mix. So, basically, I think our gross margin should be fine in the second half as the first half.

Right. But we should be seeing some more room for operating leverage. Would that be the case for second half?

I guess the operating leverage should continue in the second half, because when you look at the rental expenses, still quite much below the pre-COVID level. So it should be fine, too.

[Operator Instructions] Our next question is from Linda Huang of Macquarie.

Yes. I have several of them regarding for the gross margin. The number one is that I just want to check that for the second half, right, when we see the gross margin because we see that the first half up 1.7%. Whether we can see that in the second half will also tracking the similar -- the gross margin expansion for the second half? So that's the first one. And the second one. You mentioned about that we still can enjoy the rental benefit. So can you also help us to walk through what is the rental negotiation with the Hong Kong, Macau landlord? Because as I know that, there, the rental reversion may be like 1 to 2 years. So after the Hong Kong, Macau, we have already seen a very strong tourism arrival. Whether or when we are going to see the rental pressure? And the third question is for Hong Kong, the profit margin. Because we saw that in the first half, the Hong Kong, Macau, the profit margin very, very high, 13.8%. And I think this probably is also the record high level. So, I just wanted to check that how sustainable this would be?

Now, first, when you look at the gross margin, we don't expect that to fluctuate too much in the second half. So basically, I guess, the gross margin for the first half should be able to continue. And then for the rental renewal, actually, when you look at the renewal this year that we have done 21 out of the 36 and the increment in the first half, I mean, I was talking about 22%. And then basing on the latest negotiations, actually, in Hong Kong, although we've got quite a strong recovery of business in the retail markets, but actually, when you look at the overall retail sentiment in other industries and when you look at the street's level, there are still quite a lot of vacant locations. So the landlords are not that aggressive in asking for rental increment. There will be some rental increments, but not serious as to what we think. So basically, I guess, for the full year, maybe it should be something like maybe 20-something percent incremental for the renewals altogether. And it's still something like maybe 30-something percent below the pre-COVID level. So, we should be able to enjoy the operating leverage for quite a while further. And then for the profit margin in Hong Kong, Macau, mainly because of a strong recovery and the operating leverage, so basically, we should expect that to maintain as well.

Okay. And then the other follow-on is that this Page 24. When we see the average ticket size, right, we can see that Hong Kong and China, the ticket size is in upward trend year-on-year. But this did not happen in Macau. So, I just want to check that, what is the reason behind Macau? Are these ticket sizes tracking behind the other regions?

Actually, it's actually a very slight decline of 2% only. And I don't think it's quite too much problem. And for like Hong Kong, because we've got stronger sales of diamond product factory than in Macau. I mean the performance of diamond products in Hong Kong will be stronger than in Macau. So, basically, that's the reason why Hong Kong's figure increased better than Macau.

[Operator Instructions] We do have a couple of questions from the webcast as well. The first one is from [ Darren Yuin ]. And the question is, was there any notable improvement in licensees inventory levels during or since the interim period, particularly with diamonds? Any figures to support that?

If you talk about licensees inventory levels in Mainland, I guess, you are asking about Mainland situation. Actually, because of the weak diamond sales in Mainland, we should not see a very good improvement in licensees inventory levels. and now, I mean, in terms of diamond products. So basically, we are trying various ways to help them to maintain a more healthier level of inventory in diamonds. So basically, they will slow down their replenishment for the diamond products and then see whether we can kind of do some [ perhaps sell more ]. We will ask them -- sometimes we will ask them to look at their very slow-moving products to see whether we should return those products and try to change it to something new or more sellable type of products. That may be helpful in improving their inventory quality.

Thank you, Kathy. At the moment, we do have another question coming from audio participant. Our next question is from Lina Yan of HSBC.

Kathy, I have a question on your GP margin. I think you mentioned your second half GP margin will be quite similar to first half. And I'm wondering if your GP margin in first half has benefited from the gains on gold inventory. And when you guide for the second half GP margin, do you consider that as well?

Well, it's very hard to forecast the gross margin of gold products because the gold price always fluctuate and is on the rising trend, actually, in the second half. So basically, of course, we should expect that to help the improvement in the gross margin for the gold products in the short term. But overall speaking, when we talked about the overall gross margin for gold sales in a year, it should be more normal than the first half, which will be more volatile subjecting the fluctuations to the gold price. And in the first half, actually, average gold price rose by maybe 8%, not that much. So basically, we've been able to enjoy quite a good increase in the gross margin. And if the second half, the gold price keeps on rising, we should see quite a strong gross margin continue in the gold sales.

Okay. So maybe your second half GP margin is similar to first half. Does that assume gold price will continue to go up or not?

Kind of at around this kind of level, the latest level.

Okay. Okay. Meaning like the gold GP margin, gold jewelry GP margin will normalize to a lower level versus the realized level in first half, right?

Yes.

Okay. Okay. All right. My second question is to clarify on your guidance, like FY '24 will be a record year. Does that like refer to the profit or top line -- like profit only, right?

In fact, when you look at the revenue, actually, we are talking about meeting the pre-COVID level, and I think it's quite close already. So basically, I guess, for the top -- I mean, for the revenue level, we don't target at record high really. It's too far away from record high.

Our next question is from webcast. Our next question is from [ Kim Kapp ]. The question is, we're a net cash now and have no near-term acquisition plan. While 45% payout is respectable, when will we review our payout policy to consider paying out more?

In fact, we have a kind of -- are sticking to the official payout ratio of 45% already in this interim results. And then it should be the normal payout ratio. And in the past because of the low level of profit, we try to pay a constant amount of HKD 0.55 every half year. And this time is really happy to pay 45% eventually. So basically -- and then when we look at the net cash position, it's not that -- because you only see the net cash position at the end of September and end of March, so it's not the lowest level, actually. So during some other times because of the preparation for the peak seasons, we may need to have higher level of inventory. So basically, I think the existing net cash position is healthy, and we need that for our development of the business. And apart from that, for the borrowing -- bank loan borrowings, nowadays, the interest rate will be very high. So, that's why are expected to keep a net cash position than a net borrowing position for ourselves.

Our next question is from audio participant from Linda Huang of Macquarie.

Yes. Kathy, sorry, I have 2 follow-up questions. The number one is that for our Hong Kong retail business, I just want to know that how is this gross margin as compared to our group gross margin, 27.8% level? Is that higher than the group level, or lower than the group level? So that's number one. Number 2 is the -- for same-store sales. How is the same-store sales in Hong Kong, in China as compared to 2019 level?

In fact, when you look at the group's overall gross margin, we always say that because that retailing revenue coming from Hong Kong, Macau market will be the highest mix in the revenue. So, that's why the gross margin of Hong Kong, Macau market will be quite close to the overall group's, I mean the group's overall gross margin. And then for the same-store sales growth in Hong Kong, Macau markets -- in fact, when you compare that to the pre-COVID level, I would say that we are there already. And for Hong Kong, when you look at the latest figures, it's actually exceeding the pre-COVID level. That's a positive figure, I would say, same-store sales against that.

Okay. So China -- yes. So China is [indiscernible] and then Hong Kong, Macau is really above.

[Technical Difficulty] For China, actually, if we talk about the latest development, that's a bit below the pre-COVID level, still a bit, but it's quite close now.

I mean in latest?

Latest figures.

Our next question is from webcast. And the question is, in China, our retail revenue grew 24%, but wholesale revenue declined 23%, a very divergent trend. Can you share more?

In fact, when you look at the retailing revenue -- so when you look at the same-store sales growth for self-operated shops is actually a decrease. But then when you look at the Y-o-Y figure is an increase. And then apart from that, we have strong growth of e-commerce business. So, they altogether contribute to a quite a good double-digit growth of revenue in the retailing business in Mainland. But for wholesaling business because it's mainly selling diamond products and the diamond products was not selling good, selling well in Mainland, that's why we have a decline in the wholesaling revenue.

[Operator Instructions] Our next question is from Mavis Hui at DBS.

I have 2 more questions. So what do we expect in terms of our working capital and inventory days by the end of this financial year? Because I think if you recall back in post-COVID in the first half, actually, inventory days was 161 as per your presentation. So now at this -- the reported period is actually still over 300 days. Although we see a very good improvement, what do we expect by the end of this financial year? Do we see further room to reduce our inventory days?

In fact, when you look at the working capital, it's mainly affected by the inventory level. So the record high inventory level at the moment, we will see -- because we have quite -- when comparing to the pre-COVID level of business or the scale of business actually expand by both already. So that's why I think it's natural to see a higher inventory level. But we would try to see whether we can maintain the existing inventory level at this kind -- around this kind of level. And then for the inventory days, of course, there was a further improvement in the retailing business. We will see a better or short-term inventory turnover days in the coming periods of time.

Right. And so with perhaps some potential for net cash level improvement and if we are just keeping our dividend payout ratio, for example, then would you mind giving us more insights on how we could make some better use of our cash resources ahead?

In fact, I think we are still keeping something like -- we would stick to the 45% payout ratio. And of course, we'll see whether we can increase that a bit, but we have to have the consent of the Board approval, kind of having Board approval or kind of approval from our boss. So basically, we would work on that. But at the moment, I think 45% is kind of a commitment.

Sure. And perhaps would there be anything like merger acquisitions on the table right now? Possibly, we could expect something in the next 1 to 2 years?

In fact, when you look at the acquisition of HKRH, it's going to happen in mid-December. So, it would use up quite much -- pretty much of net cash at the moment. So basically, you should see a lower -- much lower net cash level in the March year-end.

As time is running and we only have some minutes left, so here will be the last 2 questions today. Ray, please?

Thank you. Our next question is from an audio participant, whose name is Tony Li from BOCI.

Congrats on the strong results. The question will be on the acquisition of HKRH. So would you quantify the financial impact of this acquisition? So what will be the impacts to our top line and also the bottom line and how will it affect our business operations going forward?

In fact, we don't expect any material financial impact after acquiring HKRH shares. I guess we should have some additional growth in the revenue in the top line. And we expect the business to turn around maybe in maybe 2 years to 3 years' time. Of course, we want to see a faster timetable for that. We're hard on that and hope to see that happen sooner.

Got it. So another question would be on the performance in Mainland China. Since we are not doing very well in selling the diamond products in Mainland China and we are aiming to have some product returns from the franchisees. So is there any risk associated with inventory write-off or something like that?

In fact, if returning the products, actually, they will bear their own labor cost. So it's not much big deal for us actually.

Due to time restraints, our last question is from a web participants whose name is [ Eddie Lao ]. The question is, how is the performance of the new shops in Hong Kong, Macau? And how much will these new shops contribute to the overall Hong Kong and Macau revenue?

Yes. In fact, when you look at the Hong Kong market because we have proactively added a few shops in tourist area around reopening of borders side. So basically, with these shops excellent performance, actually, it contributed a lot, I mean, in terms of kind of a double-digit contribution to the revenue of the markets.

Thank you. As there are no further questions, I'll return the conference back to the management.

Thank you, Kathy. We come to the end of our conference. Thank you very much for joining the call. And we are grateful for your continued support and care over the years. Have a nice evening. Goodbye.

Goodbye, everybody.

This now concludes our presentation. Thank you all for attending. You may now disconnect.