Earnings Call: H1 2018

Aug 28, 2018

Good morning, everyone. Welcome you all to Chow Sang Sang Holdings International Limited, HKEX stock code 116, fiscal year 2018 interim results conference call this morning. With us today are Chow Sang Sang Chairman and Group General Manager, Mr. Vincent Chow; Executive Director and Group Deputy General Manager, Mr. Winston Chow; and Chief Financial Officer, Mr. Bill Tan. The teleconference will be divided into three sections. First of all, we will have Mr. Tan walk us through the group's interim results highlights as well as the key financials. Then we will have some latest business updates from our group manager. After the speaker remarks, there will be a question-and-answer section. Before I turn the call over to Mr. Tan, I will give you all a brief introduction about Chow Sang Sang. The company was first established in 1934 and went public in 1973. It was the first jewelry company to become listed in Hong Kong. With over 9,000 employees in Mainland China, Hong Kong, Macau, and Taiwan, Chow Sang Sang Holdings International Limited operates more than 440 Chow Sang Sang jewelry stores in more than 110 cities across Mainland China, with more than 90 stores in Hong Kong, Macau, and Taiwan as at June 30, 2018. With that, it is my great pleasure to turn the call over to our Chief Financial Officer, Mr. Bill Tan. Bill, please. Okay. Thank you. Good morning, everyone. As introduced, I am going to talk about the business situation and also the latest update. I will start with the overall situation for the first six months of the year. Basically, I would like to go over, first of all, the company's main structure and business. Primarily, Chow Sang Sang Group's business is in jewelry retail, which is our main business and accounts for about 90% of our overall revenue. We focus our business in the Greater China Region. Currently, overall, we have over 500 shops. We operate under three brand names, Chow Sang Sang being the main brand, and then EMPHASIS. Late last year and early this year, we introduced another brand called MINTYGREEN, which is focused more on the younger generation, with a different look and feel. The jewelry businesses are generally about 90% of our overall revenue. Aside from that, we have two other businesses. One is the precious metal wholesale businesses, which basically handles buying and selling of physical metals and earn commission, which generate about 9% of our overall revenue. There is another business, security brokerage, which is an operation that only focuses on Hong Kong. We have eight offices and an internet platform. It is a business that we continue to run, but if chances come, we may consider spinning it off. Other than that, we do hold some investment in property, but not generating a lot of income there. Another holding we have is the Hong Kong Stock Exchange shares. We currently have about 3.5 million shares. We have been holding that, and that number has not changed since the beginning of the year. Overall, there is not much change in the main operations and also the structure of the company. We continue to focus our development on the jewelry business. Moving forward, I am going to focus primarily on the jewelry business operation situation. In terms of products that we carry in our jewelry business, primarily those are pure gold products, gem set, and we do have some licensed products. Also, we have international brands such as Rolex and Tudor. As mentioned earlier, our focus is primarily in the Greater China Region. We operate all our shops by ourselves and do not have any franchise operations. On top of the physical shop setup, we do have our e-commerce business. We have our own website that handles by itself, and also we work with other third-party platforms to carry our business as well. Currently, our network in China is around 450 shops, and Macau about 72, and Taiwan 24. Our focus in terms of growth is in Mainland China. We continue to expand by adding new shops. For 2018, we will be focusing on targeting around 50 new shops in China. Overall, these first 6 months, both markets, main market China and Hong Kong, experienced growth. Hong Kong admittedly has grown much stronger, following on from last year's recovery. We do see that recovery seems to be continuing, despite in the second quarter, there is a lot of potential disruption coming from the trade dispute and also exchange volatilities. I will cover a little bit more about the situation in July and August later, after I finish here. Coming to the financial situation for the first 6 months, as mentioned, both markets experienced growth. As a result, our turnover has increased by about 20%. From a group's perspective, gross profit improved to a similar extent, slightly better. We maintained our overall gross margin at 24.7%, slightly better than last year's same period. In terms of operating profit, we reached almost HKD 800 million, and at our OP rate, about 8.3%. Roughly 45% increase from last year's same period. As for the profit attributable to equity holder, the increase is around 65%. That is because some of the improvement, as mentioned, from Hong Kong operation where it has a lower tax rate than that of China. So that helps in overall in terms of the profit improvement to equity holders. As mentioned earlier, 90% of our business is from the retail segment. If we look at the retail segment, our revenue increased by around 23%-24%, which is slightly higher than the group's average. The result of the operating profit improved by 46%, just slightly shy of the group's performance because it turns out that is some disposal gain that we have, which helped to add a few points to the bottom line. Overall, our business, the source of revenues are mainly from the Chinese customers who patronize us in China, but also in Hong Kong as well. As reported from the tourism board that the Chinese tourist visitation to Hong Kong has increased in the last 6 months. Overall, we see that also in our result. If we look at the purchase in Hong Kong, coming from the tourist business, we noticed that it increased from last year's same period, about 45%, to this year, about 50%. As a result, our business coming from Chinese customers has increased about 27%. On same-store sales income, if we look at it by different product categories, first 6 months of 2018, we see that gold has performed very strongly, especially in the second quarter of the year. As a result, we see that overall gold as a percentage of our revenue mix increased to 63%. Watch held on at 5%, which to a certain extent, could be better. It had the ability to get some more inventory or more stock. With regards to the other contribution from different geographic locations, we noticed that the split is roughly the same as last year, 61% from China, 38% from Macau, Hong Kong. That is because, though China has been increasing in the profit and revenue at double-digit rate, Hong Kong increased as well. As such, the ratio maintains. Moving on to the average selling price of the piece. We do see that gold has improved a bit in Hong Kong at about HKD 4,800 a piece, slightly higher than last year. Jewelry also increased to HKD 12,400 a piece, about 4% higher than last year. We do see that in terms of gem set jewelry in Hong Kong, there is very strong performance in the last 6 months. For China, gold is more or less the same. Jewelry, we do see that, we sell a lot more in quantity, but on average, the prices are slightly lower. That is a drop of about 8% there. Working capital with the improvements in turnover, we do see that the average inventory days has improved and dropped by over about 30 days. That is the overall group objective. For retail business only, the inventory days are around 210 days, which is an improvement of about 34 days compared to last year. Overall, the other ratios are all trending towards improvement or holding. There is not much worth additional comment. If one come to the overall financial situation summary, turnover improved 20%. Similarly, gross profit delivered a similar amount in terms of rate of improvement. Net, the profit attributable to equity holders increased by about 54%. The board proposed a dividend of HKD 0.15 per share, which represents about 66% higher than last year, same period. Up to today, up to the first 6 months, we incurred around HKD 133 million of capital expenditure, higher than last year. Those increases are mainly a result of new shops and refitting of old shop, plus our investment in expanding our production facilities in the Cheung Kap factory. We do expect that the overall capital expenditure will be around HKD 250 million-HKD 300 million this year, with the rest to be incurred in the next 6 months. Next, in terms of balance sheet situation, we have a stronger balance sheet with HKD 1.6 billion cash on hand, and we have improved our gearing. There is still a considerable amount of unused banking facility available for our needs. With regard to our strategic outlook, there is not much change since we reported to the market 6 months ago. We will continue to expand and focus on mid-to-entry-level consumers, and also shift more towards shopping mall as a channel of sales, and also complement our coverage via our e-shops operations. We will continue with our self-run store model, because we believe that it fits better with our overall strategy and also gives us a higher integration in terms of various business channels. Product-wise, jewelry focus, and we will continue to look at different ways to differentiate our product, be it materials, be it in design, and also the way that we deliver it. Marketing, continue to use the internet environment and focus on synergizing with physical shops. Since 2017, we have revamped our customer CRM database, and nowadays we have over 2.5 million New Hope members since our revamp added to the database. We will also capitalize on those informations. Regarding marketing activities, key is in the area of weddings and also continue expansion of Baby Wear. That basically is a quick rundown on our financial situation for the first six months and our outlook in terms of strategic focus. A few words on the situation for July and August. Basically, despite the different news in the international arenas and also changes that are going on, July, August in both Hong Kong and China seems to be holding on. Both markets, we see positive same-store sales growth overall, probably, even though we have not come to finish the month of August. As we can see, for China, probably we will be looking at something like teens in same-store sales growth. In Hong Kong, high teen and even more than that. That's what we are looking at. In both markets, it looks like the gold is stronger than jewelry overall. Nonetheless, Hong Kong jewelry is also pretty healthy for the two months. So far, we have not seen very obvious negative impact with regard to the recent development in the international trade war and also exchange fluctuation, especially about renminbi devaluations, its impact on our business yet. We remain cautious as to what's going to happen in the next few months. As I said, overall, at this point of time, we have not yet seen or have not seen any clear sign that things are quickly turning south. I will stop here and open the floor for questions. Thank you, management. We are now beginning our question and answer section. If you have any question for today's speaker, please press 01 on your telephone keypad and you will enter queue. After you are announced, please ask your question. If you find that your question has been answered before it's time to speak, press 02 to cancel the question. Once again, 01 on your telephone keypad now to ask a question. Our question is Emily Lee from Nomura. Please go ahead. For the presentation and congratulations on the very good results. Couple of questions from my side. First two questions is regarding the China market. If we were to look at the China same-store sales in the first half, it came in at 2% growth. It looks relatively weak, although it's still positive. I was just wondering if you could share with us, how is China performing by city tier or by region? Any particular area which is doing better or weaker? Secondly, it's regarding the China ASP. Obviously, we're still seeing some pressure on the ASP side. I was wondering if you can share with us, is it because we are launching new products that commands a lower ASP, or is this because we are giving out higher discounts on the existing products or old product? In the MD&A, we mentioned that we have two shops that are up for renewal in the tourist area in second half in Hong Kong. I was wondering if you can give us some expectation as to how that is going to be for the second half in terms of renewal. Lastly, as the wholesale business, I noticed that the revenues are up by 9%, but the operating profit is up by close to 40%. Any reasons why there is a surge in operating profit despite the revenue drop? Thank you. Well, Emily, you have four questions, and I'll try to tackle them. Thank you. It could be the wholesale business because it depends on what product we sell even though the overall dropped by 9%. Because apart from handling gold, we do handle platinums and also palladium and those products. So there's a change in mix, which gives some help in terms of bottom line. Actually, because the operation is so small and with such a small cost base, any swing in the top line revenue will have a seemingly drastic impact on the percentage. But overall, that business is not contributing in any very significant way to our business. Nonetheless, there is some change in the shift in the products that they are handling. Because they also have their own performance targets, so they will have to look for business sometimes to get a better result. Second last question you have about the two shops that we will need to renew. I think, if these two shops, the renewal probably come from the last quarter, or whether we renew or not, that's the question also because it will depends on how the negotiation will go. So if the rent offer is not favorable to us, then as we said before, we will not hesitate to consider closing them. So that's one position we take. On the other hand, if the question is about what do we see as the possibility of further rental cuts or how significant we can What magnitude of a cut that we can expect, I mean, that's kind of difficult to predict. But I think, we do expect that if we are to renew, there'll be some rental downward adjustment. But probably unlikely to have things like the year before, 40%, 50% cut in rental cost for those two shops may be unlikely. Given that, as we've been reporting that so far the retail business seems to be still okay. So the landlord may not be as easy to give in terms of the rental. So in short, we do expect if we are going to renew, there'll be some rental adjustment downward and as to the magnitude, probably will be much smaller than what we experienced before. Also, if the rental adjustment is not adequate for us to maintain a reasonable business, then we will not hesitate to just close it and look for another location. I think that's probably the position. The other question you asked about is the average selling price a piece. Basically, I think we are focusing a bit on the daily wear product. So naturally that will mean average pieces price will be a bit closer to what the consumer would like to see. They can buy more frequent than those pieces that are for special events like weddings, et cetera. So that is one of the trend that we expect. If we look at the overall situation, we do see that the 1 carat or above in terms of quantity do have improvement on period-by-period basis. It is somewhere between the 0.5 and below 1. That group there seems to be a bit of a softness there. Partly also if we look at the situation in Hong Kong, actually we do see that most of the categories has shown significant improvement over last year. As I said, we do pay more attention to daily wear, and we do introduce more product that are slightly at a lower price range. So this trend is not completely a surprise. With regard to the same-store sales growth for China, as you say, yes, it is a slight positive. I think the trend has been improving since Q1 and Q2. I think the area that we have a bit of challenge is to overcome the relatively high same-store sales growth rate last year, and particularly in Q1. Certainly with regard to the jewelry business, because in Q1 in 2017, our jewelry same-store sales growth was about 15%, and that we could not beat that in 2018 yet. I think the other side of the business is that our focus in terms of gold, normally we pay more attention into the fixed price gold product, which normally has a slightly lower price tag. Also, as a result, in terms of driving the turnover, which is where the same-store sales growth is calculated from, will be less aggressive and less strong in terms of how you see the performance. We are looking at different ways to address that without trying to change our strategy of trying to push for higher margin products. All right. Thank you. Thank you for your time. Very clear. Thanks. As a reminder, please press 01 on your telephone keypad now to ask a question. As a reminder, please press 01 on your telephone keypad now to ask a question. Our next question is Anne Ling from Deutsche Bank. Just one quick question regarding the July and August number. It seems that China, you just mentioned that same-store sales growth is in teens. Does it mean that it's mainly driven by gold? Based on the current trend from Chow Sang Sang or maybe some of the other retailers, is it fair to say that we are seeing a little bit of a mini gold rush during this period? What do you think is driving that? Thank you. Well, I think, as you say, we do see that gold is taken very favorably by consumers in this period of time. In terms of the business in China, it is a strong purchase. I don't think we are coming to a rush as we have seen in the last two, three times in the past few years. But if you ask what are the reasons for that, we can only guess what are some of the reasons why consumer would like more gold. I think some of that may be because, in terms of the general environment in China, properties and all these assets are either under quite close scrutiny and control by the government and the stock market is a bit volatile. So to some consumer, they may think gold will be something that they can use and also something that can have some value for storage. That's only one guess. Other than that, what else we can say? Yeah. Another question is on the jewelry side, if you take a look at July and August, if you strip out, just single out jewelry, are you seeing any slowdown versus the second quarter? Would you just remind us, if we take a look at the first quarter, second quarter breakdown, what is the same-store sales growth trend right in particular second quarter? Second quarter for Hong Kong, we have more than 30% overall. For China is about 2%. First quarter, second quarter is similar, both 2%? Yes. Okay. Got it. In that case, China is accelerating in July and August, whereas for Hong Kong, is there some deceleration or that high teens plus is just a conservative guidance number? Well, the month has not ended, so Okay. It is still our guess. And obviously because there is some timing difference between some of the promotion periods between this year and last year. We have a big one in the first half of August because of the Qixi Festival. Last year's festival is somehow in the end of the month. It is today. Not today. There will be some difference- Okay in terms of performance, obviously. Okay, got it. Thank you. Our next question is from Apollo Investment. Two questions. The first one is the Internet sale. I believe now 14% of your China turnover. Could you give us a breakdown, what percentage is from your own website, and what percentage from third parties? Yes, I would say over 95% is from third parties. Sorry, I could not hear that. Sorry? Sorry, very bad line. Could you repeat it again? I couldn't hear that. Okay. Your question is about what percentage of our sales- Yes in our internet business is from our own site versus from third-party site. That is correct. My comment is, over 95% of our sales is through third-party website, primarily through Tmall, Jingdong, and VIP.com. Okay. The second part is the new brand, MINTYGREEN. You mentioned that this was the younger age. How do you see the market? Is there a gap in the market or you say the market that basically is growing, you are entering that? We do see that there are opportunities because, obviously, the consumption power of the younger generation is much stronger. Also, there are different types of channel and outlet that the younger generation frequent. So we see that there may be a chance for us to also introduce our brand to the younger generation in places where they visit, instead of some of the current channels that they may not probably visit as much. Obviously, this is something that involves estimation of the potential and also has only started really this year. So the number of shops are not many, and we are still looking at how we may improve the model overall. This is Vincent. Yeah. Let me add a little bit on this MINTYGREEN thing. Our strategy is not so much just to enter the market. We have always been catering to the younger segment of the population. But by means of MINTYGREEN, we want to really strengthen the focus on their needs, as much as a customer experience, different kinds of decor, different kinds of service. Yes. Not different in quality, but different in experience. Yeah, I understand. But the merchandise. We do have the same merchandise in the regular Chow Sang Sang. It is just that there would be a sharper focus. Okay. The last question, could you give us a bit more information on the rationale behind the JV with Harvest Fund, and what do you hope to achieve in this JV? Obviously, we would like to be able to give us a chance to further improve by leveraging different advantage or strength of the two parties. We do have a network and a setup in Hong Kong, while they do have the opportunities or the potential in introducing different customers. Okay We will be having a chance to share a bit of the potential growth in China. So moving forward, that could be valuable, whether we carry on or whether we have other opportunities, option to look into. Okay. Thank you. The next question is Ryan Lee from CMB Capital. Hello. Congratulations on the results. Just one other question. Would you be able to provide some data in terms of breakdown of tiers and region of China in terms of same-store sales growth? If possible, would you be able to give us some light in terms of the sales in July and August, breakdown by region and tier of cities as well? Thank you very much. Well, I can give you a flavor as regard to some of how the various regions are performing, but we don't normally share each region same-store sales growth data. If you look at it, we do see that what we call the China West, which cover the cities, area like Chengdu, Chongqing, and all these places, in a sense, they are doing quite strong. We do see that the northern provinces, which are primarily in the Jilin, Shenyang, or those areas, they are having a tough time because basically the general economic situation in those places, which primarily rely more on heavy industries, are not as good. That also affect our overall performance. I think the China East is steady, which cover areas in the middle part of China, including cities like Shanghai. Also China South, which are closer to Hong Kong, around. They have a strong run in 2017, so this year, they are also working very hard. Besides, some of the business are very related to Hong Kong as well. So if Hong Kong performs stronger, they will have a bit more pressure because some of the purchase could have been done in China South area. Overall, I think it's slightly mixed. But net, we do not see one area that is significantly dropping behind. That's all I can comment. Okay, great. Thank you very much. Next question is Lena Yan from HSBC. James, first, given the very strong business performance, what's your outlook on the rental costs in second half and also in next year, 2019? So that's my first question. Thank you. I think I commented a bit about some of the general environment with regard to the rental renewal. As we say, we probably still will see the difference between street-level shops and the shopping mall shop. That's one. Meaning shopping mall shop will continue to experience probably rental increase. Street-level shop, depends on the situation. Maybe still have a chance to reduce a bit, but not far less significant than prior 18 months. As we still have a few renewal, we talk about the big one, so that could still give us some benefit moving forward to 2019 with regard to overall rental cost in Hong Kong. Probably it would be fair to say that probably we still will see some reduction in rental cost moving forward in 2019. Okay. That's very good. Given a very strong performance in first half, have you revised your store expansion plan, especially in Hong Kong and Macau? Any changes in store closure or opening in this region? Yes, we had improvement in Hong Kong. But if one just look at it, we have not reached to the level as we had, the highest point or some higher point in the past few years. I think it is probably prudent for us to still be very vigilant in terms of opening new stores in Hong Kong. Our focus in Hong Kong probably is to continue to work on efficiency in terms of staff performance and also in how we manage the inventory more effectively. Not to mention that in Hong Kong, there's also the challenge of getting enough people for our shops. Regarding to opening in Hong Kong, we are not ruling out opening new shops if there are right opportunities, but we have no aggressive plan to say, "Okay, given the performance this six months, we're going to change our view of just realigning our network instead of expanding in any significant way." As for China, as we always maintain, our number 50 shops is something we like to do, and we are not sort of nailed down by that number. If opportunity arise, we may open more than 50. If there's no good locations, then we may open slightly less, and that I think you probably can see that in the last two years. In some years ago, we aim at 50, but we only end up about 35. Last year we reached about 48. This year, if I may look at it, probably we will do 50. If opportunity allow, maybe a little bit more. Okay, that is very good. Also related to the last investor's questions on by city performance. My question is, given the same-store sales in July and August in China, any changes in the by region performance, if you qualify them as strong, tough, and steady, also okay for the West, North, East, and South China in first half. Any changes in the momentum in the July, August two months period? At this point of time, we do not see significant change because it is just one and a half month of result. Actually more focused in August than July. I do not think it is fair to say, okay, because of that, we believe the whole situation has changed. Just like, I do not believe that the economic situation in the north three provinces will change overnight. That is still the primary driving force in terms of why people spend on discretionary items. Okay. Thank you very much. I have very final question is, can you give us some by channel performance, like the department store and the shopping malls in China in first half? Thank you. That is all I have. All right. Thanks, Helena. Currently, in terms of the shopping mall and department store, the split is about Chow Sang Sang of 20% of our store is in a shopping mall and 80% is in a department store. Of course, I mean, you can see one or two percentage on street level, but that is very few. On average, I think overall the difference is not significant at this point of time. Of course, in different locations you will see very varied performance. Some department store do extremely well and similarly for some shopping mall also. It is very hard to say, which one model is better. In the past, we do believe the department store give us a better cost base to work at because we do not have to pay rent unless we get mixed sales. But nowadays, I think as the environment has to change whereby, the shopping mall has its own attraction in terms of the whole package of offer in the complex. That helps to attract people. And some of the department store also engage into a different mode of compensation, whereby they have also sort of a base rent that we need to handle as well. When you look at last two, three years, probably we do see that there is a gradual improvement in the shopping mall performance. At this point, on average, I think the department store is still slightly better than a shopping mall overall, if you take an average. Next question is Linda Wong from Macquarie. Theodore, thank you very much, and I have two questions. The first one is regarding for the gross margin. I noticed that in the first half, the gold contribution increased by 1% to 63%, but our gross margin increased by 30 basis points. So I just want to figure out that, what is the factor behind that? Even we have the higher growth of the product mix, I was thinking, can see the gross margin expansion. And does that imply that in the second half, even though we see that a strong out of gold consumption, are we still likely to see the gross margin improvement on year-on-year basis? The second question is regarding for the online. Can you share with us more about your online operation, including how much of the growth rate in the first half, and what is your expectation for the second half in 2019? In terms of the consumer behavior for online shopping, such as like by gender and gold and jewelry mix, et cetera. Thank you. Okay. Let's tackle the gross margin question first. Basically, yes, we do see the improvement in gross margin. I think there are a few factors that contribute to that improvement. One, as I mentioned before, when I was answering the comment about why our same-store sales growth seems to be slower, relatively speaking. Because one of the driver of the top line is gold. We tend to focus more on what we call the fixed price gold, which will generate smaller piece, and naturally lower in terms of sales price per piece. But that fixed price gold will have higher margin than the normal calculated price gold. That's one of the reason why we see that even though our gold increase, but our margin did not necessarily deteriorate. Secondly, in regard to the mix shift a little bit, because overall, as we continue to grow China's general gross margin is higher than Hong Kong. So that will also help us. Thirdly, from a group perspective, the margin is a group margin. We do see that in our wholesale business has dropped in revenue because their contribution is not high in terms of gross margin. So from a group perspective, a shift in more business from retail will naturally increase their gross margin. So those are the three factors that contribute to that. I guess, I'll continue to focus on the fixed price gold will carry on. Also our China growth, we believe, will still be steady. If one has to make a guess with regard to our gross margin outlook, I would say probably at least stable, if not continue to improve if we manage to further grow our jewelry business. Despite the average price may be down, the jewelry's margin is higher than gold. So that's probably one way to look at it. Of course, there are many things that may impact the overall business, but those are the factors that we will consider. Then about the online picture. For first half, our online business growth about 23% in the first six months compared to last year. That growth accelerated a bit in July and August. Our primary product that we sell online are gold and platinum. These two categories account for about 90% of our product that's sold through the e-commerce. The balance of 10% is jewelry and K gold. The average price per piece is about HKD 1,200. As you can see, they are the relatively lower price range products. Having said that, even though about 75% of our product in the e-commerce is gold, of that 75%, slightly more than half of those revenues are from what we call the fixed price gold. It's generating a reasonably good margin that is comparable to jewelry margin. I think our view is that e-business will continue to be a very important channel for us moving forward. Obviously as our base has grown, currently it already account for about 14%-15% of our total revenue in China. The speed that it can expand as a percentage, probably not expect to maintain at a high speed moving forward. Like two years ago, probably you have been sharing with you a figure of something like 60%-70% year-on-year growth. Now we come to even the year before, I was talking about 35%-40%. Now it's about 20%-25%. Probably it is fair to expect that we will continue to grow the business moving forward. But obviously there are a lot more competition and also the operating environment will be getting even more tough in terms of how we can make ourselves outstanding. The people who buy from us basically are the younger ones, the below 30s. We still see that female is more than male as a gender. That's a rough picture of our e-business. I have a follow-up question, is that, for fixed gold product, is it fair I say that its gross margin similar to young gold jewelry, or is it between gold and non-gold jewelry? It all depends on the product. The range will be anywhere from 30%-40%. Okay. And the other one is for online. Online profit margin, is it better than offline or in line? Well, online profit margin is better than the Okay, got it. physical shop. Yeah. Okay, I got it. Thank you. The next question is Raymond Jiang from Ultimate Capital. Congratulations for the very strong results. Just maybe two questions I have. One is actually a follow-up on Anne's question previously. When we talk about July and August same-store sales trend in China, we are seeing an improvement. Can you give us a little color? You mentioned that it might be because of gold. If we talk about this on jewelry side, how is the July, August trend versus first quarter and second quarter? My second question is, can you give us some color on your store traffic by Q1, Q2, and comment on July and August for both China and Hong Kong? Thank you. I think in terms of the jewelry side for China first, just to address the questions. For July and August, we are looking at about a teen sort of number in terms of jewelry. As I said, it depends on how this week end will end up to see the final figure. That is what we see for the moment. In terms of traffic, I think overall there is an increase in traffic in both Hong Kong and China. Because obviously we do not have a traffic counter where we can give a clear picture. If you want to look at the number of transactions that carry through, as we mentioned, in China, we have a lower average price, but we do have improvement in terms of overall sales. We do see that there is improvement. In Hong Kong, it is even more obvious. The tourist business has improved a few percentage points, and overall sales in terms of HKD increased by over 20%. Even if you look at the physical quantity of products sold, we are also looking at more than teen increase. By our feedback from the frontline is that the traffic has actually improved in the last few months. Even if we look at the tourist visitation, I think the June numbers are stronger than the first five months of the year. Okay. Thank you. Our next question is Ines Wong, BOCI Investment. Given payout ratio. The balance sheet is very healthy, a lot of cash, and that once the CapEx for the DC is finished, would management consider a higher payout ratio? I think- If not, what is the rationale behind it? I think we are always flexible in terms, we have not fixed a rate- Yes in terms of what the payout should be. It is always a matter of balancing what we believe to be required for further investment for future growth and also a return to shareholders in terms of dividend cash. I think obviously, for example, in the last few years, when we have some extraordinary income, we do pay extra. Also, if obviously we do not see further opportunities to invest, there is no point. Then we keep the cash. We either pay down the loan, or we obviously will consider as an option to pay more dividend. For this time of the year, as we mentioned, we are still cautious about what is going to happen in the next 6 to 12 months with regard to the general global environment, which ultimately may have an impact on our business, both in China and in Hong Kong. We are certainly taking a slightly more conservative point of view in terms of the way we treat dividend for the first half. Okay. Thank you. Our next question is Linda Wong from Macquarie. One question. Regarding the effective tax rate, I want to know what your guidance is for the full year. Because we know that Hong Kong contribution is increasing. Could you give us some visibility particularly for the second half effective tax rate? Thank you. At this point of time, probably I would say similar to first half. 25%? Slightly short of that, but not there yet. Yeah. Okay. This is the end of question and answer session. Management, do you have any closing comments before we conclude? We are fine. Thank you. Thank you. This concludes our conference call. Thank you all for attending, and goodbye.