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

Good afternoon, everyone. I'm Joanne Ho with Luk Fook IR team. Thank you all for joining us today for our Financial Year 2024 Annual Results. It is truly a pleasure to have this opportunity to speak with you once again. Joining me this afternoon is Dr. Kathy Chan, Executive Director and CFO of the group, who will take you through our annual performance and our strategies for the upcoming year. Then I will open the floor for the Q&A session. The conference will be conducted in English, and the presentation material is available now on our website. Now I would like to invite Dr. Kathy Chan for her presentation. Kathy, please.

Okay. Thank you, Joanne. Good afternoon, ladies and gentlemen. Thank you for joining Luk Fook's FY '23/'24 Annual Results Presentation. I would like to start with looking at our financial headlights 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. It is worth noting that after the acquisition of the controlling stake of Hong Kong Resources Holdings Company Limited in mid-January, its financial results have been consolidated into our accounts since then. Now let's look at Slide 4 about the financial highlights first. Benefiting from the low base effect as well as the full reopening of borders amongst Hong Kong, Macau and Mainland early last year, the group's retailing business achieved satisfactory results, especially in the Hong Kong, Macau markets, and served as the key growth engine for the group. Retailing revenue surged by 45.3% to HKD 12.75 billion, accounting for 83.2% of the group's total revenue, primarily driven by the sales of gold products. Therefore, revenue reached HKD15.3 billion, a 28% increase compared to the same period last year. Operating expenses to revenue ratio improved by 0.6 percentage points to 15%. Together with the one-off re-measurement gain from the acquisition of HKRH of around HKD 187 million, operating profit increased by 34.2% to HKD 2.12 billion. Profit attributable to equity holders increased by 37.6% to HKD 1.77 billion, which is the second highest annual performance in our history. Now let's look at Slide 5. The basic earnings per share increased by 37.4% to HKD 3.01. The proposed final dividend and annual dividend were HKD 0.64 per share and HKD 1.41 per share, respectively, with a dividend payout ratio of 47%. At the end of March 2024, the group had a global network of 3,583 shops, a net growth of 478 shops, out of which, 218 of them are coming from 3DG Jewelry brand which belongs to HKRH. Now let's go into the details of our financial performance. As mentioned, just now, the 28% growth of revenue was mainly attributable to the outstanding performance of the Hong Kong market -- Hong Kong and Macau market. As the growth was mainly driven by the gold product sales with lower gross margin as compared to fixed-price jewelry products, coupled with the decline in the gross margin of the licensing business, the overall gross margin of the group increased slightly by 0.2 percentage points to 27.2%. Therefore, gross profit increased by 29.2% to HKD 4.17 billion. The net margin increased by 0.8 percentage points to 11.5%. And the profit attributable to equity holders increased by 37.6% to HKD 1.77 billion, making the second highest annual performance in the group's history. When comparing to the pre-COVID year, the books revenue is almost there while the bottom line is well above that by 18.9%. We are now on Slide 8. We have declared a final dividend of HKD 0.64 per share with a dividend payout ratio of 47%. When we exclude the special interim dividend of distribution specie of HKRH shares, the dividend payout ratio will be 45%. That's in line with our official dividend payout policy of 40% to 45%. On Slide 9, it shows that the group held a record high but a healthier inventory level of around HKD 9.6 billion at the end of March 2024. If excluded HKRH inventories of HKD 726 million, inventories were around HKD 8.8 billion, which was a little bit lower than flattish compared to last year. Benefiting 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 68 days to 310 days and the closing inventory turnover days decreased by 58 days to 322 days. We have net cash of HKD 570 million with the decline mainly due to the full repayment of HKRH bank borrowings. Our ROE increased by 3.2 percentage points to 13.7% for the year under review. Now let's go to Slide 10. The group's NAV per share as at 31st March, 2024 was HKD 21.91, 5.2% higher than last March year-end level and around 22% higher than the pre-COVID level. Let's go to Slide 11 now. You can see that our overall gross margin, operating margin and net margins were at quite a stable level in the past few years. Now let's look at Slide 12 for the performance analysis by market. The revenue from Hong Kong, Macau and overseas markets increased by 52.4% to HKD 10 billion during the year under review. It accounted for 65.5% of the group's revenue, mainly driven by the recovery of retail sentiment in Hong Kong, Macau, following by the border reopening. The segment profit soared to HKD 1.18 billion with 104.5% growth, which accounted for 54.8% 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 slightly decreased by 2% to around HKD 5.29 billion, accounting for 34.5% of group's total revenue. Its segment profit dropped by 15.2% to HKD 973 million, accounting for 45.2% of the total. It's worth noting that the average renminbi exchange rate is 1.09 in FY 2024, a 4.7% drop as compared to FY 2023. With the recovery of business of Hong Kong and Macau market, it contributed again more than half of both revenue and profit 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 other markets, which has great growth potential, so as to mitigate the impact of the Mainland market. Slide 13 shows our revenue and segment profits by business. The retailing business was the main growth driver for the group's revenue, benefiting from the significant improvement in tourist traffic and spending in Hong Kong and Macau after the reopening of borders, coupled with the favorable gold sales and low wage effect. The group's retailing revenue increased by 45.3% to HKD 12.7 billion, accounting for 83.2% of the group's total revenue. Segment profit also increased substantially by 82.8% to HKD 1.25 billion, accounting for 57.9% of total and its segment profit margin was 9.8%. On the other hand, despite the increase in the number of licensed shops, the group's wholesaling revenue declined by 28.3% to HKD 1.5 billion, accounting for 10.1% of the group's total revenue. The segment profit decreased by 29.8% to HKD 186 million, accounting for 8.6% of the total. Its segment profit margin was 12.1%. As the segment profit of wholesaling business include profits from inter-segment sales of self-operated shops, if including inter-segment sales in the denominator, its segment profit margin would be 4.4%. Licensing income slightly decreased by 1.8% to nearly HKD 1 billion, accounting for 6.7% of group's total revenue. The segment profit margin was 69.6%, while its segment profit decreased by 7.3% to HKD 720 million, accounting for 33.5% of the total. Now let's look at the profit analysis on Slide 14. Despite a yearly increase of 10.2% in the average international gold price in U.S. dollars per ounce, the demand for gold products remains robust. Consequently, sales of gold and platinum products increased by 50.7% to HKD 10.4 billion, accounting for 72.6% of overall sales amount and became the key driving force of the group's retailing business. Its gross margin increased by 1.9 percentage points to 19.3% as a result of the increase in the gold price, while gross profit of gold and platinum products, they both increased significantly by 67.2% to HKD 2 billion, accounting for 58.4% of the overall gross profit. On the other hand, the sales of fixed-price jewelry products decreased by 3.1% to HKD 3.9 billion, accounting for 27.4% of the overall sales amount due to the decrease in the demand for diamond products. Nevertheless, because of the increased mix of retailing revenue, which has higher gross margin than wholesaling, gross margin of fixed-price jewelry products increased by 6.1 percentage points to 36.4%. Its gross profit therefore increased by 16.3% to HKD 1.4 billion, accounting for 36.4% of the overall gross profit. Now let's go to Slide 16 for performance in Hong Kong, Macau and Overseas markets. Retailing revenue from the Hong Kong, Macau and Overseas markets increased by 52.9% to HKD 9.9 billion, accounting for 98.4% of this market's total and 64.5% of the group's total. Its segment profit increased significantly by 91.6% to HKD 1.05 billion, accounting for 89.3% of this market's total and 48.9% of the group's total with a segment profit margin of 10.6%. On the other hand, the wholesaling revenue slightly increased by 3.6% to HKD 109 million, accounting for 1.1% of this market's total revenue and 0.7% of group's total. Its segment profit increased by 676.5% to HKD 81 million, accounting for 6.8% of this market's total and [ 3.8% ] of group's total. Its segment profit margin was 74.3%. As the segment profit of wholesaling business included profit of inter-segment sales of self-operated shops, if including inter-segment sales in the denominator, its segment profit margin would be 3%. Apart from that, due to the addition of 3 overseas licensed shops during the year, Hong Kong licensing income increased by 183.1% to HKD 45 million, accounting for 0.5% to this market's total revenue and 0.3% of the group's total revenue. Its segment profit was HKD 46 million, accounting for 3.9% of this market's total and 2.2% of group's total, and its segment profit margin was 102%. With the increase in licensing income from overseas market, it successfully helped mitigate the decline in such income in Mainland markets. Now let's look at Slide 17 for performance in Mainland markets. Despite the [ lackluster ] macroeconomic conditions driven by the robust growth of e-commerce business, Mainland's retailing revenue experienced satisfactory increase of 24.1% to HKD 2.86 billion, accounting for 54.2% of Mainland markets revenue and 18.7% of group's total. The segment profit increased by 46.5% to HKD 194 million, accounting for 20% of Mainland markets total and 9% of group's total. Due to the continued sluggish demand for diamond products in the Mainland markets, revenue of wholesaling business, which primarily focuses on diamond products, this decreased by 30% to HKD 1.43 billion and accounted for 27.1% for Mainland markets revenue and 9.4% of the group's total. The segment profit decreased by 58.6% to HKD 105 (sic) [ 106 ] million, accounting for 10.8% of Mainland markets total and [ 4.9% ] of group's total. Its segment profit margin reduced to 7.3% as a result of recognizing inventory impairment provision of HKD 35 million because of the declining environment market size. As the segment profit of wholesaling business included profit of inter-segment sales of self-operated shops, if including inter-segment sales in the denominator, the segment profit margin would be 6.6%. Licensing income decreased by 4.7% to HKD 989 million, which accounted for 18.7% Mainland markets revenue and 6.5% of group's total. Its segment profit decreased by 11.3% to HKD 673 million, accounting for 71.6% Mainland markets total and 51.3% of group's total and its segment profit margin was 68.1%. Now let's go to Slide 20 for the achievements of our e-commerce business in Mainland. Its revenue increased by 26% to HKD 1.83 billion, exceeded the original growth target of 10% for this financial year and accounting for 64.2% of retailing revenue in Mainland and 14.4% of group's retailing revenue, with ASP increased by 12.5% to CNY 1,800. Let's move on to next slide and take a look at the performance of our self-operated shops. The overall same-store sales of the group was positive 32% with same-store sales for Hong Kong, Macau markets at positive 40% and negative 2% for Mainland markets. Overall speaking, both sales of gold and platinum products and fixed-price jewelry products performed well due to their strong recovery in Hong Kong, Macau market, of course, the low base effect as well. The group's same-store sales for gold and platinum products was positive 38% and positive 16% for fixed-price jewelry products. Now let's go to Slide 24 for average ticket size. The average ticket size in Hong Kong, Macau and Mainland all increased by 6% to 9%. It's worth noting that average ticket size using China UnionPay cost increased by 17.2% to HKD 15,900, which was much higher than the 10% yearly increase in average international gold price. Let's look at Slide 26 now. The TOE increased by 23% to nearly HKD 3 billion, representing 15% of revenue. The TOE-to-revenue ratio improved by 0.6 percentage points as compared to the same period last year, mainly attributable to the lower fixed salary ratio to revenue because the fixed salary increased in a slow manner than the revenue growth actually. We have 35 renewals out of 67 shops in FY 2024. The over renewal increment was 19%. There are 2 leases to be renewed in FY 2025, around 1/3 of the total. The increment rate is expected to be lower than that of FY 2024. Now let's look at Slide 28 for the CapEx in FY 2024. The CapEx mainly consists of the acquisition of office premises in Wuhan at CNY 42 million to meet the business needs and 6 floors of premises intended for future expansion of our fulfilment hub in Shenzhen, IBC area at CNY 470 million. We do not expect any significant CapEx in FY 2025. Now let's look at the group's future plans and strategies. Before the beginning of FY 2023, we had set up our new 3-year corporate strategy: Mainland market expansion, branding and operational efficiency as our 3 main focuses to foster future business growth. Slide 31 shows our network expansion plan for FY 2025. By end of March 2024, the group had a total of 3,583 shops globally with a net addition of 478 shops, out of which, 218 of them were 3DG Jewelry shops acquired from HKRH Group. We have 3,490 shops in Mainland, 54 in Hong Kong, 18 in Macau and 21 in Overseas. In the coming year, the expansion of Lukfook shops in Mainland will continue to focus on opening licensed shops in 4th and 5th tier cities. As for the development of new brands, including the 3DG Jewelry brand acquired by the group on 12 January, 2024, the group aims to mainly add licensed shops in the Mainland. Moreover, the group is optimistic about the immense growth potential in the overseas markets and intends to proactively allocate more resources to expand its footprint across the world. We plan to net add 15 shops in the coming year. The CapEx budget for FY 2025 is expected to be around HKD 95 million, which will be used for shop, office and plant renovation as well as purchase new equipment at office. And then we are now on Slide 33. To strengthen our competitive advantage, the group plans to enhance operational efficiency through the transformation of supply chain management, implementation of complete automation and the adoption of advanced systems for big data management and data analytics. We are always committed to maximizing employees' productivity by calculating and nurturing culture of continuous improvement and innovation. Now let's look at Slide 34. The group continuously strengthens its brand image and positioning. Additionally, it enhances product quality assurance, improve service quality, optimize support for licensees and adopt the multi-brand strategy to meet market needs. Following the launch of various brands or product lines like Goldstyle, Lukfook Joaillerie and Heirloom Fortune, the group launched a sub-brand, Love Lukfook Jewellery, in May 2023 and added the 3DG Jewelry brand after the acquisition of HKRH in January 2024 to attract the younger generation for the affordable luxury markets. The group will persist in penetrating and targeting the middle-class wedding and generating fee 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 foster high customer loyalty. To meet the needs of different customers, the group adopted a targeted development strategy and enriched its product lines and brand portfolio through multi-brand strategy. We introduced various new shop images to revitalize the brand and extend the unparalleled shopping experience to exhibitions and roadshows to further exploit local consumption. We rolled out a series of online and offline campaigns, including inviting celebrity couples and holding 22 wedding exhibitions in Mainland to reach out to the top customers of the wedding market. In November 2023, renowned Chinese actress, Tiffany Tang [ Yan ], was appointed as the Global Brand Ambassador. Her refined elegant image was a perfect fit for the brand. Her starring role in the hugely popular Mainland TV series, [ Blossoms ] Shanghai, [indiscernible] which aired in December 2023 was a big hit and it was a big hit and resonated strongly with Chinese audiences. Leveraging this, the group's promotional campaigns across 3 major platforms generated over 700 million media exposure in total. We have also invited the winner of Miss Hong Kong Pageant 2015, Louisa Mak, as an image ambassador and showcased a variety of diamond jewelry pieces from the Lukfook Jewellery Race Day. In addition, Tiffany Tang made her appearance at the Love is Beauty collection launch event in Shanghai to unveil the campaign. To raise the brand's influence and recognition, we launched a series of promotions to celebrate the year of Dragon and penetrate in lower tier cities with the theme of Recognise Lukfook Jewellery of Hong Kong. The total exposure of this promotion has reached over 370 million. In order to improve brand awareness and recognition among our target customers, we have executed a range of celebrity endorsement campaigns in both short term and long term. We've upgraded our CRM to Social CRM, enabling us to monitor customer spending patterns across multiple channels. We held nearly 12,000 VIP workshops in FY 2024. As at end of March 2024, our membership base increased by 36% to reach over 7 million. With members contributing 67% of our total retail sales, member spending rose by 36% compared to the previous year. To attract Generation Z consumers, we initiated collaborations with popular intellectual IPs to jointly develop and launch products. We jointly launched gold jewelry product with NetEase Games, sponsored and made the KPL championship rings for 15 consecutive seasons and introduced a series of gold jewelry product of a Tencent game, Happy Poker. We have actively collaborated with reputable partners to organize -- co-organize promotional activities to increase our brand exposure to target customers. We sponsored the Xian Marathon 2023 and collaborated with Conrad Hotel and launched Afternoon Tea to attract middle class customers. Effective sustainability governance is a crucial factor in driving the long-term success of the group. Therefore, we continuously optimize our environmental, social and governance of ESG management systems and committed to integrating ESG principles into our corporate planning and operational decision-making processes. We have already received 31 awards in FY 2024, which is a testament to our commitment to society. In addition, the group once again donated HKD 1 million to continue supporting the Tung Wah Group. Also, we have installed nearly 2,000 square meter of solar panels at our Nansha plant to directly power the central air conditioning system and supplying approximately 74% of the electricity needed for air conditioning. The increase in Central Bank's gold reserves and ongoing worldwide geopolitical tensions have driven gold prices to reach new highs since March this year. This addition in the face of challenges such as macroeconomic uncertainties, weakened consumer sentiment as well as slip of renminbi, the sales performance of the group in January to March was impacted to a certain extent, especially in March. The continuous escalation of gold prices to new record levels in April further impacted the sales of gold products. The group's [ simple ] sales from April to 21st June, [indiscernible] was at around negative 5% in Hong Kong, Macau market and around negative 20% for the Mainland market. Since the demand for diamond products subdued in the Mainland, the group will continue to actively promote our diamond fixed-price jewelry products in order to enhance performance of fixed-price jewelry products. Moreover, although the temporary spike in gold prices may affect sales performance, an increase in profit margin will help mitigate the impact of the decline in sales. Sales of the gold products are expected to resume to the normal levels after consumers adapt to the high gold prices. Furthermore, the Mainland market is actively working on expanding domestic demand to support gradual recovery of the Mainland markets. In hopes of improved macroeconomic conditions as well as retail sentiment recovery, the retailing business is expected to regain its growth momentum. As such, the group remains optimistic about this mid- to long-term business prospects. The group will continue to expand in the Mainland markets and still expect to see a positive growth in shop number in the coming year. Apart from that, the group is optimistic about the immense growth potential in the overseas market as well. As a result, the group will allocate more resources to expand its footprint across the world and plan to net add around 15 shops in the overseas markets in the coming year. This concludes my presentation. Thank you for listening.

Thank you, Kathy. [ Wei ], please open the floor for questions now.

[Operator Instructions] Our first question comes from the line of Linda Huang of Macquarie.

This is Linda from Macquarie. So I have several questions. The first one -- yes, the first one is regarding for FY '25. And can you give us some more whether you have any of the guidance regarding for the revenue growth, even though we saw that the April and May seems to be quite challenging. And can you also give us some color regarding for margin outlook and also store expansion. We saw you have a store expansion for overseas, but what about China? So that's the first one. And the second one is that the last 1 to 2 days, we saw the news is that the China government, they try to relax the duty-free quota to 15,000 in Macau and Hong Kong. So do you see we could benefit from this, the duty-free quota relaxation? So that's the second one. And the third one is for the rental reversion. I heard that you mentioned about the FY '25, the rental reversion will be less than FY '24. So can you give us like roughly how much of the rental reversion you saw in FY '24? And how much that will be in FY '25?

Okay. You asked a lot of questions. Okay. Let me see, about the revenue growth, actually, we have tried to compare our FY '24 results to the record high year. In fact, because we have quite a good set of results in FY 2024, so actually, in fact, internally, we are trying to see whether we can create kind of a record high in the coming year because it's really not too far away from the record high. So when we look at -- compared to a record high year, actually, in terms of revenue, of course, it's still a bit maybe something like 20% below the record high level, that's in financial year 2014. But in terms of profits, like the net profit for the -- the profit for the year is only around 6% below. So actually, when we did our planning for FY '25, we end at a record high really. But then because suddenly, we see kind of high gold price or record high gold price grading like in March, April period of time, so it hit the sales -- the retail sales performance quite a lot in those 2 months. So that's why, up to now, we can still see like in the first quarter, like April to June, we are expecting a decline. Of course, we expect if in case of people, customers can be -- can really adapt to the high gold price and then with a better macroeconomic conditions, we can see kind of a recovery to a normal level in terms of gold sales. So that's why we -- it's very hard actually. It's very hard to see or to forecast the kind of revenue growth at this moment. For us, of course, we are always looking at double-digit growth. But of course, we will do our best to achieve that kind of target. But in fact, it's really very hard to tell because there are so many kind of uncertainties in the world nowadays like the geopolitical situation, the tension, the China-U.S. trade war, that kind of things. So I don't really have a revenue growth guidance or targets for you at the moment. But of course, at least we really want to at least keep, I mean, kind of -- if we can -- at this moment, we say that if we can keep the level in FY 2024, it will be very good already. Of course, we are always looking at kind of double-digit growth if the environment [indiscernible]. And then for the margin outlook, from our presentation, you can see that actually in the past few years, no matter how the economic conditions is like, like the COVID period actually, we have quite stable level of margins and it's kind of a low double-digit profit margin for quite some years already. So I think we -- for margin itself, we should look for kind of a stable margin. And for Mainland expansion, like what I've just explained, it's really hard to forecast how much we can expand -- we can build more. But indeed, we are still looking at positive net growth of number of shops in Mainland. So -- but it's hard to tell a very pointed number at the moment. And for the duty-free -- increase in the duty-free quota in Hong Kong, Macau market, of course, I think that, that would be helpful and it would help to attract more Chinese -- Mainland visitors to Hong Kong for shopping purpose too. And for the rental increments, actually in FY 2024, we have 35 renewals and only around 19% increment. That's below my expectation or my original forecast. And then for FY 2025, the reason why we expect a low -- even lower increments because of the macroeconomic condition of the retail sentiment in Hong Kong is not that good at the moment. And when we did the renewal, actually, we are asking for a negative -- a kind of a drop in rental really. So that's the reason why we expect that to be a lower increment. So if FY '24 is 19%, maybe we should expect something like a low double-digit or even lower, something like that. Okay. Thank you.

Our next question comes from the line of Mavis Hui from DBS Bank.

About the current quarter's performance, would it be possible to give us a little bit more idea in terms of breakdown on same-store sales for Hong Kong, Macau and also for Mainland China in terms of same-store sales trend for self-operated stores versus licensed stores? That's my first question. And my second question is, what was the amount of transactional gains of gold product sales booked in FY '24? And looking into the first half of this current year with a high gold price, would you think the gains from gold jewelry sales could be big enough to offset some potential operating deleverage so that our operating margin could still be flattish?

For the question, are you asking for the period from April to June?

Yes. My first question refer to this quarter, yes, April to June 21st, yes.

Okay. So basically, for Mainland market, actually, the performance for the licensed shops and the retail self-operating shop actually will be quite similar for this period of time, very close. So you should expect that negative trends [ 20% ] for both of them. And then for Hong Kong, Macau market, I think -- let me see, Hong Kong, Macau market, we should -- actually, they are very similar as well. Yes, very similar. So you can apply that percentage to both markets actually. And then for the transactional gain part, for this quarter, I'm not too -- are you asking for the holding gain? Is that your question? What do you mean by transactional gain?

From the gold product sales, because of a higher gold price.

That's the holding gain that we always mention about, right? Let's see. For that part -- because we don't really look at that too much nowadays. In fact, when you look at the gross margin increase in gold product sales, it's not that much. It's only around 2%. So in fact, it means that there is not really that much benefit gained from that. So for this year, I think for whole -- let me see, it should be something -- it's a loss, not a gain for us, really. So I don't -- because when you look -- when we -- when the average gold price increased by 10%, but when you look at the gross margin, it's only increased by 2% for gold products. So that means that actually, I think we have cut something like a discount for -- discount on the retail sales for making -- I mean, for the -- for boosting the retail sales. So the holding gain is not really that meaningful nowadays.

I see. So for the first half of the current financial year FY '25, we might experience some operating deleverage because so far, we've seen some declines in revenue. Would we expect first half GP margin gains probably to offset such operating deleverage?

In fact, when we look at the recent retail performance, although we see kind of quite a high drop in the revenue, but indeed, the gross profit did not really drop that much because of the higher gross margin. Yes, so that may be helpful in offsetting the kind of the deleveraging situation. So that's why I would say that when you look at the margins, actually, we are always having kind of quite stable margin in the past years. They would automatically offset each other really with kind of a different impact.

Great. Just lastly, on wedding-related sales, do you mind disclose a bit in terms of the percentage from this category now?

Well, in the past, it's around -- maybe something like 30%.

Right. So it's around that level.

Around that level, yes.

Our next question comes from the line of Chris Leung from Franklin Templeton.

I just have 2 questions. Number 1 is on the finance cost because the total borrowing increased in FY '24. But most of them, 75% of that actually come from the gold loan. So how should we think about the finance costs for this year? And -- yes.

Well, I guess you should expect us to have much lower finance costs indeed because right now, in fact, today, we have cleared all the corporate loans. So the remaining loans would be only gold loans. And gold loans is -- all-in cost will be very low one -- very, very low cost, maybe something like below 1% all-in cost. So you should expect us to have a much lower interest expenses in this year.

Okay. Okay. And then second question is on the inventory because most of this is actually gold and gem side, right? So the gold inventory amount actually has dropped a little bit in -- if I compare half-on-half. So how should we think about the absolute dollar inventory?

In fact, when you look at their March end inventory, it's actually a bit -- you exclude the ones coming from...

A bit high, all right.

Yes, it's a bit high but if we exclude the amount from [ 3D Gold ], actually it's a bit lower than last March. So we are controlling our inventory actually in a quite tight manner at the moment. So we are trying to reduce the inventory level. If -- it depends -- all depends on the market situation. So if there's no need to have so much inventory, we try to reduce the inventory level. So it all depends on the market situation. If the market is kind of -- we'll have a kind of rebound and you would see us having a high inventory level again.

Yes. But what about the time that you need to ramp up the -- like the time lag between the inventory that you need to build and the -- versus the sell-through...

It's not that difficult. Actually, every day, we have a lot of gold selling. And then it all depends on whether we do the replenishment or not. If we stop the replenishment, then the inventory level would reduce, not that difficult for us actually, very easy.

I see, I see. So is it fair to say from April to June 21st now, the sales has dropped. So the inventory -- absolute inventory has also dropped.

Yes.

Our next question comes from the line of Tony Li from BOC International.

So I have 2 questions. So first question is on dividend policy. So we have that cash in the hands after the consolidation of HKRH. So now we only have net cash of less than HKD [ 600 ] million. So what would be our expectation of dividends for FY '25? Are we expecting to raise some debts to pay dividends? And then for second question is on the store model of overseas stores. So we are adding more stores overseas, but are they self-operating stores or franchising stores? And what would be the target countries?

Okay. In terms of the cash, actually, we have repaid around 1 billion -- more than 1 billion bank borrowings for the HKRH or the 3D Gold Group. And then actually, I'm surprised to see us having a net cash flow so much -- such a high level of 570 million already by end of March because the debt repayment was made in mid-January. So actually, I think in this situation, we -- as I have just mentioned, we have already fully repaid our corporate loans today. So basically, all our borrowings now is actually only gold loans. So basically, for net cash -- for the dividend, actually, because we -- our business is so seasonal, so nobody will -- during the dividend payment period, we have to borrow money to pay for the dividend. But we'll be very soon fully covered by the cash inflow from our business. So at the end, you would see us -- even after paying all the dividends, you would see us having a net cash position always by end of the year. And then for the store overseas, actually, we target to net open around maybe 15 shops overseas this financial year and mainly it will be like the Thailand, the Philippines, like U.S. and then one in Belgium, I think, and that kind of countries. Yes.

Got it. So can you share some color on the average sales of the stores? I'm really expecting them to contribute more sales in terms of [indiscernible] in FY '25 or FY '26.

In fact, for those overseas shops, it will be mainly -- around -- I think around 5 of them will be self-operated shops and 10 will be in -- will be licensed shops. So we should not expect that to be so many -- because they won't be very -- because the number is small. So we should not expect them to a very material contribution to the overall retail revenue.

[Operator Instructions] And next, we have a question from the webcast. The question is from [ Yoon Qing Li ] from CITIC Securities. And the question is, the wholesale business, how has the willingness of franchisees to place orders been recently? Are we seeing a further decline in the demand for diamond embedded products in their order structures and should we anticipate a decrease in the gross margin for FY 2025?

In fact, for the -- at this moment, we still see -- actually, it's a decline for everything, not just diamonds, we can see decline in gold product sales as well. So yes -- and then because they are actually having similar kind of simple sales drop for every kind of product, so basically, I don't think we will have a very volatile gross margin, actually. So we should expect quite stable gross margin.

[Operator Instructions] As there are no further questions, I will return the conference back to Kathy.

Thank you, Kathy. As time is running, and we come to the end of our conference. Thank you very much for joining the call, and we are grateful for your continuous support and cares to Luk Fook over the years. We hope you have a nice evening and weekend. Thank you.

Thank you. Bye-bye. Good bye.

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