Good evening, everyone. Welcome to today's conference call. Tiffany, please begin the call. I will be standing by for the question and answer section.
Sure. Good evening, everyone. Welcome to Luk Fook FY 2018 Income Results Conference Call. I am Tiffany Feng, Citi Consumer Analyst. We are pleased to invite company CFO and Executive Director, Ms. Kathy Chan, Executive Director, Ms. Nancy Wong, to join the call. Kathy will give us a results presentation first, and then we will open to Q&A. Kathy, please.
Okay. Thank you, Tiffany. Good evening, everybody. Thank you for joining this interim results conference call for the six months ended 30th September 2017. I would like to start with looking at our first half financial highlights, followed by financial review and our future content strategy. The details are recorded in the corporate presentation, which has been uploaded to our website. I would like to go through that with you on the phone. During the period under review with the relatively low base, successful new product strategy, and gradually improving retail sentiment, the group recorded revenue increase of 15% to HKD 6.3 billion, while operating profit improved by 16% to HKD 645 million. Profits attributable to equity holders increased by 21% to HKD 520 million. The basic earnings per share increased by 22% to HKD 0.89. The group's e-commerce business revenue was doubled, contributing 15% to mainland retail revenue.
The group proposed an interim dividend of HKD 0.35 per share and a special dividend of HKD 0.20 per share, summing up to a total of HKD 0.55, which is the same as last year. The payout ratio is 62%. The group had a net increase of 46 group of shops during the period under review. Most of them were in Mainland China, including 18 self-operated and 29 licensed shops. Now, let's go into the details of our financial performance. Last year, because of high gold price rise leading to low gold demand, we had increased gross margin in gold products with higher gram sales mix, resulting in unusually high overall gross margin of 28%. In the current period, with relatively stable gold price, gross margin of gold and platinum products decreased to more normal levels.
Thus the group's gross margin dropped by 1.8 percentage points to 26.2%, while gross profit rose by 7.5% to HKD 1.6 billion. Besides the increase in sales led to higher variable costs, yet with the fastest increase in revenue, the total operating expenses to revenue ratio decreased by 1.4 percentage points to 17.1%, compensating the impact of decreased gross margin. Together with substantial drop of gold hedging loss, operating margin, therefore, maintained the stable level of 10.3%, and net margin slightly improved to 8.3%. Profit for the period increased by 20% to HKD 521 million, and profit attributable to shareholders increased by 21% to HKD 520 million. The group's financial position remained healthy. The inventory level rose 8.5% to around HKD 7.3 billion, as there were 18 new self-operated shops opened in the period.
With increased sales, the inventory turnover days reduced by 24 days to 287 days when compared to the same period last year. We have net cash of HKD 1.4 billion and ROE of 11.3%. The group's earnings due to share as at the end of September 2017 was HKD 15.89, representing a year-on-year growth of 6%. The operating margin and net margin in the past two years remained at quite a stable level, though gross margin fluctuated a bit. With improved retail sentiment and increased visitor arrivals in Hong Kong and Macau, still coupled with high base in the second half of the financial year, we remain cautiously optimistic about the second half's performance, and we hope to see positive growth with stable operating and net margin for the full year. The Hong Kong Macau market remains the key source of revenue for the group.
Hong Kong Macau overseas revenue recorded an increase of 10% to HKD 4.1 billion, which accounted for around 66% of the total revenue. The respective segmented profits increased by 23% to HKD 314 million, accounting to around 48% of the group's total. In the Mainland China market, the revenue increased much more by 26%, mainly because of increased number of shops there, reaching HKD 2.2 billion. Segmented profit increased by 11% to HKD 369 million, contributing more than half of the group's total. Retail business was our final revenue source. With improving consumer sentiment and increased number of self-operated shops, retail revenue increased by 17% to HKD 4.7 billion, representing around 70% of the total.
Sorry, 75% of the total. However, with a more stable gold price, its overall gross margin dropped, and its segmented profit decreased by 1.9% to HKD 332 million, which contributed to about 47% of the group's total.
On the other hand, due to increased number of licensed shops, the wholesale revenue rose by 6% to HKD 1.3 billion, representing 21% of the group's total. Its segmented profit increased substantially by 39% to HKD 201 million, mainly because of increased centralized purchases, especially in Hong Kong Macau markets. It accounted for 28% of the group's total. With increased number of licensing shops, licensing income also increased by 23% to HKD 272 million, which was 43% of the group's total. As there was high fixed cost content in its cost structure, its segmented profit increased significantly by 42% to HKD 176 million, contributing to 25% of the group's total. With double spring enlistment in the lunar calendar that benefits the sales of wedding-related products, the sales of gold and platinum products increased by 14% to HKD 3.3 billion, representing 56% of the group's sales.
Its gross profit dropped by 4.5% to HKD 514 million because of lower gross margin in the period. It represented 37% of the group's total. With our successful strategy in launching good value for money products, our gem-set sales increased by 15% to HKD 2.7 billion, representing 24% of the group's total. Gross margin of gem-set jewellery products dropped slightly while its gross profit increased by 11% to HKD 927 million, representing 53% of the group's overall gross profit. With relatively stable gold price in first half of FY 2018, the gross margin of gold and platinum was lower to 16.1% as compared to the 19.3% in the first half of last financial year, which was not yet normal level because of less promotional activities going on in the current period as compared to before.
The retail revenue and its segmented profit in Hong Kong, Macau, and overseas markets recorded a growth of 12% and 3% respectively in the period under review. Its segmented profit margin decreased slightly to 6.8%. The wholesale revenue of these markets decreased by 10% because of reduced scrap gold sales in the absence of high gold price rise environment. However, its segmented profit increased substantially by 2.4x because of increased centralized purchases. Its segmented profit margin therefore increased significantly to almost 25%. In mainland China, all three businesses recorded positive growth because of increased number of self-operated and licensed shops. Retail revenue increased by 44% to HKD 924 million. Its segmented profit decreased by 15% to HKD 173 million because of reduced gold gross margin. Its segmented profit margin, therefore, decreased to 7.9%. The licensing and wholesale business recorded 22% and 15% growth respectively.
For the same reason, wholesale segmented profit decreased by 1% to HKD 120 million, and its segmented profit margin was 12.4%. With a high fixed cost content in the cost structure, the segmented profit of licensing business increased greatly by 42% to HKD 176 million, and its segmented profit margin grew back to more than 50% level. In the Hong Kong, Macau, and overseas markets, gem-set and gold products recorded an increase of retail revenue by 14% and 11% respectively. With sales mix at stable level of 71% and 59% respectively. Mainland markets recorded substantial growth in both gem-set and gold products retail sales at 33% and 49% respectively, because of increased number of self-operated shops there. Gem-set mix decreased a bit to 29% in the current period. We may look at slide 16 now. Our overall same-store sales growth regained growth of 11% after three consecutive years of decline.
With the newly launched value for money products such as the 3D hard gold products, the ASP in Hong Kong, Macau went down substantially by 38%, while the volume surged by 18% in gem-set category. Thus, the Hong Kong, Macau same-store sales growth recorded double-digit growth of 11%, with gold and platinum at 8% and gem-set at 14% positive. The same-store sales growth in mainland China was +17%, with gold and platinum at +23% and gem-set at +4%, because hard gold products were sold mostly by weight and the gold category in mainland China, as people there were more price sensitive. Slide 17 shows the same-store sales growth for this in different tiers and regions in mainland China. All tiers of cities recorded overall positive same-store sales growth.
In terms of regions, all regions recorded positive overall growth as well, except southern part, where there was only one shop. That is why the figures will be more volatile. Overall speaking, gold and platinum products performed better than gem-set in Mainland China because of extensive offering of hard gold products and very stylish new designs in the gold category. Looking back at our last four quarters of same-store sales growth, as announced before, with the low base experienced in the last few quarters, coupled by launching good value for money products and a gradually improving consumer sentiment, Q1 and Q2 in FY 2018 recorded positive growth in both Hong Kong and Macau and Mainland China markets, regaining a growth track. We expect that the momentum will go on in the remaining part of the financial year.
For Macau and Mainland China, the average ticket size recorded slight growth of 4% and flat respectively to MOP 7.8 thousand and RMB 3.4 thousand respectively. As explained earlier, the significant increase of sales in the newly launched value-for-money product in the Hong Kong market, which were put under the fixed price gem-set category, the overall gem-set ASP in Hong Kong went down 40% to HKD 2.8 thousand during the period under review. Therefore, average ticket size in Hong Kong declined by 17% to HKD 5.4 thousand. For diamond, jadeite, gemstones, and pearl products, which in general have higher ASP, we are glad to see their ASP regain a gentle positive growth in Hong Kong Macau market, especially in Macau market.
Apart from that, the mainland visitor's transactions in Hong Kong Macau markets when counting UnionPay cards, RMB cash plus WeChat Pay and Alipay transactions, accounted for 58% nowadays as compared to 55% before. With the increase of 15% in revenue, we had a moderate increase of total operating expenses by 5.7% only to HKD 1 billion. Because of the faster increase in revenue, the total operating expenses to revenue ratio decreased to 17.1% during the period under review. Rental and payroll accounted for more than 70% of the total operating expenses. Overall rental increased by 5% because of increase in number of self-operate shops. In fact, the variable part of rental increased by 37% due to increase of numbers of shops in Mainland China where most contracts were turnover rentals. There are 70 shops in Hong Kong Macau subjecting to rental renewal in this financial year.
The rental reductions was an average of 30%. Therefore, fixed rental in Hong Kong Macau market decreased. Overall staff cost increased by 8%. If including sales, the variable portion increased by 12%. With increased number of self-operate shops in Mainland China, the fixed portion therefore increased by 7%. During the period under review, the Group incurred CapEx of HKD 38 million, mainly used for shop renovation. The full year budget was HKD 122 million. Due to increase of self-operate shops, the Group's inventory level increased by 8.5% to HKD 7.3 billion. Inventory for gold and platinum increased by 4% to HKD 2.9 billion, while that for gem-set jewelry increased by 11% to HKD 4.4 billion.
In view of increased revenue, inventory turnover days for gold products improved by 13 days to 177 days, while that for gem-set jewelry improved by 34 days to 454 days as compared to the same period last year.
The performance of 3D-Gold business continued to improve, and the loss further narrowed from HKD 25 million- HKD 17 million with the investment in operating activities in the HKSAR area. Now let's look at the Group's future plans and strategies. Given the improved overall economic environment and increased visitor arrivals in Hong Kong and Macau, coupled with the high base in the second half, the Group is cautiously optimistic about the business performance in the short run, yet remains optimistic in the mid to long run with the expectation of good growth of middle class population. We shall continue to uphold our business development through the three key focuses, products, China, and branding. Through various productivity enhancement measures, the Group is dedicated to intensifying the execution of these three key strategies.
With the three focuses in mind, we will keep on enriching our product portfolio with stylish jewelry designs at affordable price to target at middle class and continue to capture this market. We will also continue to seize the market opportunity in Mainland China by enlarging the market coverage there. With improved market sentiment, our target net addition of shops in Mainland China for FY 2018 increased from the original 50 to 80 shops previously, and now further upgrade to at least 100. Expansions will be mainly in lower tier cities. We will also continue to optimize our e-commerce business network. Lastly, for branding focus, the Group will continue to adopt market-oriented strategies to further penetrate into middle class wedding and kids markets, as well as boosting local consumption.
The Group will also strive to enhance productivity and reduce expansion in different operational aspects, including ongoing negotiation with landlords on rental reduction, improve staff quality controls, and enhance the shop's vibrancy, as well as promoting continuous improvement culture and full automation of operational processes. Currently, we have all together more than 1,500 shops worldwide, covering nine countries and regions, namely Hong Kong, Macau, Mainland China, Singapore, Malaysia, Korea, U.S., Canada, and Australia. We have net increase of 47 local shops in Mainland China in the first half of this financial year, where 18 of them were self-operate shops and 29 licensed shops. On top of local shops, we have 10 3D-Gold self-operate shops operated by the 51% owned joint venture with a licensee, intensifying the development of our dual-brand strategy.
By the end of September 2017, we had 1,476 local shops in Mainland China, covering all 31 provinces and municipalities in more than 300 cities, with shops mostly concentrated in northern and southern China. During the period under review, the Group had opened our second self-operated shop in San Francisco U.S., and we will open two licensed shops in Cambodia in the upcoming period of time. With the rapid development of e-commerce, we achieved remarkable growth for our e-commerce business in the past few years. The revenues increased by 104% to HKD137 million during the period under review, which exceeded our full-year target of 50% growth. The revenues accounted for almost 15% of the Group's retail revenue in Mainland China now. Good value for money items remain popular in our e-commerce business. The ASP increased by 16.7% to RMB 1,050.
For the product mix, gold and platinum products accounted for 77%, while gem-set jewellery products accounted for 23%. We currently have 10 platforms, including Tmall.com, JD.com, and Vip.com. The group also captured the rapid growth of online marketing by various creative manners. For example, we invited KOL and approached online fashion magazines to share styling tips on our products, which helped to attract the younger generation. As middle-class population is getting more engaged in sports and entertainment apps, together with our medal sponsorships with mobile phones, we collaborated with sports apps to launch promotional activities that help us to further penetrate into the target group. In view of the growing impact of esports, the group sponsored the Champion's Ring of King Pro League Star Play.
With over 50 million active Honor of Kings players, the seasonal finale games and the presentation of the Champion's Ring was aired by eight online platforms that reached 2.1 billion viewers. Our series of products were worn by celebrities in the celebrity week that was aired as a reality show in mainland China. The collaboration successfully raised brand exposure to the millennials. To conclude, with improved consumer sentiment and macro-economic environment with increased visitor arrivals in Hong Kong and Macau and successful multi-offering strategy, we are cautiously optimistic about the performance of our second half, though it may not do as good as our first half under high base. Therefore, we still target a double-digit same-store sales growth for mainland China markets and single digit same-store sales growth for Hong Kong and Macau markets for the full year. This is the end of my presentation, and thank you for listening.
Hi, operator. Before we open the line for Q&A, maybe I can start with the first two questions. The first question is on gross margin. Our gold gross margin was 16% in the first half. Although decreased from last year's high level, it was still above the previous normal level. So Kathy, can you give us more color on how can you achieve this good margin in a relatively stable gold price level in the first half?
In fact, actually apart from the stable gold price, actually, because in the current period of time, we have less promotional activities going on that will be helpful to the gross margin of gold products.
Okay. Do you think it is a sustainable level going forward, 16%?
Maybe. It all depends on the competition environment, because in the last period of time, actually, because the environment allow us to stop some of the promotional activities, that is helpful to our gross margin in gold sales.
Okay. Do you think there is further improvement room for the gross margin of gold?
I guess this will be a There may be a new standard gross margin for gold product in the future, but may not be as high as the current one, the one that we show in the first half.
Okay. For gem-set gross margin, what is the reason for the decline in first half?
Oh, because for the first half last financial year, actually, the high gold price actually was helpful to the gross margin of gem-set jewellery as well, because for all gem-set jewellery, there is some gold content inside.
Oh, okay.
But this year we do not have that kind of environment. That is why the gross margin for gem-set dropped a bit as well, but not as much as the gold.
Okay. The second question is on the rental cost. The fixed rental cost was largely flat year-over-year.
Yes.
Can you explain why it is not a reduction given the industry-wide renew rental reduction?
Yeah. In fact, for Hong Kong and Macau markets actually, it decreased a bit more than that. But you know that there was a Parisian operation, a new shop opened in the middle of September last year. That is why in this current period, we have full six months of rental for that Parisian shop in Macau. That contribute, I think, around HKD 6 million- HKD 7 million higher rental for the first part in the current year. That contribute quite much to the increase in rental. That is why we offset the impact of the reduction on the renewals.
Okay. What is your outlook for the second half and next year for the Hong Kong and Macau rental?
I think for the full year, we should have a bit higher reduction than the last financial year.
A higher reduction rate than-
In the last financial, talking about 1.6% drop.
Yeah.
For this full year, we expect that to be a bit higher than that.
Okay, so that means in second half, we will see a big decline for the rental?
Hopefully. But it also depends on whether we will open more self-operating shops in overseas and Hong Kong market.
Okay. What about next year?
Next year, we haven't got a very concrete view yet, but because the rental reduction actually started last financial year, basically, we should have three years of rental reduction, because normally, the lease term is talking about three years.
Okay, thank you. Operator, do we have any question on the line?
Thank you. If anyone wish to ask question, please press star one on the telephone keypad. Our next question is come from Edward Lui from Morgan Stanley, Hong Kong. Please go ahead.
Hi, just quick clarification. Why did the ASP for gem-set decline by 38% in Hong Kong again? Is that because the fixed price gold is included under gem-set?
Yes. Because the volume changed by 80%, and then for that kind of a hard gold, a fixed price type of product, is put under gem-set category, and it is mostly below HKD 1,000.
I see. In terms of margin, is the fixed price gold similar to the overall gem-set, the other diamond?
Yes.
I see. Do you mind breaking out how much of that within gem-set is fixed price gold?
Nowadays, it is talking about maybe 14%-15% within the gem-set category.
14%- 15%, or 15%?
Yes. Around something like that.
One four?
One four, one five.
Got it. Okay. My second, just to clarify, why did the GP margin go down? Is that stable gold price? Because if I look at the-
Oh, because last financial year, we had very high gold price that led to very high gross margin because with low demand. This was very slow turnover. That's why we have a very high margin, especially in Mainland China. This year, the gold price was quite stable, so we do not have that kind of a high gold price environment. That's why the margin dropped back to a more normal level. We talk about short term, the gold price fluctuation will have more impact on the gross margin. If you extend that to full year, the impact will be reduced.
I see. If you look at like-to-like margin for the gem set, is it stable?
It is quite stable. It dropped less than the gold margin. In fact, because there is the gold content in gem-set jewellery as well, therefore it would be affected by the fluctuation of gold price in the first half of last financial year as well, making it at a bit higher margin. This year, because everything goes back to normal, the gem-set jewellery gross margin go back to normal.
I see. Regarding second half margin, do you think it will continue to be similar level to first half?
Likely.
Got it. Thank you.
Welcome.
Thanks, Kathy.
Thank you. Our next question is come from Jun Wei from BNP Paribas Singapore. Please go ahead.
I would like to know more about the color of the expansion plan. The expansion to lower tier cities and to overseas expansion. Could you discuss more about the strategy and what the plans are going forward?
For the expansion plan, actually, we mostly focus at the mainland market. That is why our target of adding 50 in Q3 firstly was mostly targeting at mainland, and we have revised upward that to 100 because of the improvement in the retail sentiment in mainland China. For overseas markets, mostly at a halt phases. But of course, if there will be opportunities, we will still add. That is why, in the first half, we have added one shop in San Francisco, U.S., and then we are going to open maybe one to two licensed shops in Cambodia in the second half. Apart from that, sometimes we will also check whether there will be opportunity in other countries, but we do not have a very concrete target yet at the moment.
Okay. For the expansions, would it be mainly licensed, Kathy?
For the mainland market, it would be mostly licensed shops.
Okay, thank you. About how do you have a breakdown there or no breakdown?
If we are talking about 100, then maybe around 20 will be self-operated and the remaining licensed.
Okay, thank you.
Welcome.
Thank you. If anyone wishes to ask a question, please press star one on the telephone keypad. Our next question is from Hugo Shen from Shenwan Kingsway, Hong Kong. Please go ahead.
Hello, Kathy. This is Hugo. Can you hear me?
Hi. Yes.
Sure. Just a quick question regarding on the holding gain or losses during the period. Can you also remind us the last year's full year's holding period gain and losses on gold as well?
In fact, I have just looked at the half-year holding gain. Actually, in the current period of time, it is only HKD 6 million. In last financial year, first half, we are talking about HKD 121 million. If we exclude all these holding gains and exclude the hedging losses altogether, actually, the current year profits will be quite similar at this current level. But then, the last financial year's first-half profit will be much dropped. Therefore, if we excluded all those holding gain and hedging figures, actually, we should have something like a 40-something percent growth of profits.
Okay, got it. Thank you.
Thank you. Our next question comes from Mavis Hui from DBS Hong Kong. Ma'am, please go ahead.
Hi, Kathy Chan . Can I just check with you on the store addition in China? Because now we've revised up to 100 net additions for FY 2018 for this current financial year. So what about two, three years down the road? What do we expect in terms of rough idea of addition each year?
In fact, it all depends on the macro environment. The 50 target was set about two years ago. We have a three-year plan of 50 every year. So in fact, this is the second year, actually. But with the improving retail sentiment, we have increased the target to 100. Actually, it's at least 100. It should be more than 100. For the next financial year, it all depends, for the time being, we still keep our target of 50, although it may be a bit conservative. We haven't reached the point of fixing our operating plan for next financial year yet. We may talk about that in more details in the coming final result announcement.
Right. Thanks. Actually, we are also seeing increasing demand for tailor-made products in the region. Some luxury groups, and perhaps some of your peers, are already starting to increasingly cater for this. Do we have some plans to beef up tailor-made products to some extent?
Tailor-made luxury product for what?
Tailor-made jewelries, for example. Would that be anything in your mind for the next?
You mean tailor-made for individual customer?
Yes, exactly.
Oh.
For couple.
We actually offer that service as well, but it is on request.
Right. Okay. We do not have any bigger plans in terms of how we are actually beefing up the tailor-made product segment for now, is that correct?
Oh, I think for now, we are more focused on the mass luxury market, so that you see that the loads of people, when they look for example, gem products, they are looking for around HKD 10,000 and then RMB 6,000. That is not that likely to be their big business for us for now. We have a new collection called the AQ collection, and that is more like a charm that you can DIY yourself, and then you can just mix and match on your own. There are a lot of revised pieces in it. I think that for now, this is more suitable for the market that we are targeting at.
Right. Great. Thank you.
You are so welcome.
Thank you. Next we have a follow-up question from Edward Lui from Morgan Stanley Hong Kong. Edward Lui, please go ahead.
Just a quick follow-up. Regarding the fixed gold price, it was 14%-15% of sales this year. What was it around last year? Just wondering about the growth from last year to this year.
Hard gold products. Fixed price hard gold products?
Yes.
I think the mix was maybe around half of that in last financial year.
Okay. You were saying the ASP is around HKD 1,000?
Lower. It's normally below 1,000.
Are these more like Pandora charms kind of thing?
Oh, no. Actually-
Hard gold?
Yes. The 3D hard gold product is not that kind of a Pandora.
Yeah, it is not only those kind of charms, but also the pendants, and also sometimes we have the bracelets as well. The bracelets is only a small portion. So mainly it's like pendants.
Yeah, pendants would be the most part of that.
I see. Thank you.
Welcome.
Thank you. Our next question comes from Albert Ye from CICC Securities Hong Kong. Albert, please go ahead.
Hi, management.
Hi.
I have two questions. Firstly, it is about the segment profit margin of Hong Kong wholesale business. I saw the margin substantially increased up to 25% of segment profit margin, and it is driven by centralized purchase. Could you give us more details about the improvement, and if this high margin can be sustainable in future? Was it related to the increase of gold product margin in your first half result? Thank you.
In fact, the high margin in Hong Kong and Macau market this current period was mainly because we have increased centralized purchases, especially for those 3D hard gold products under the gem-set category. That is why it improved the wholesale segment margin a lot in Hong Kong and Macau markets, and it benefits the whole Hong Kong and Macau region as well. Actually, it really depends on whether we have more centralized purchases. In future, same set right now, the fixed price gold or gem-set product is still selling very well. We should still expect that portion, that centralized purchases to maintain at a high level in the coming period of time.
My second question is about the latest rental diversion trend. I remember you mentioned in the first quarter of FY 2018 the rental of prime shops dropped by 40%-60%. Can you give us some update on the latest trend?
Yeah. Actually, that 40%-50% drop mainly happened in the first quarter. Overall, I think in the first half it should be talking about 36% on average. Because we got the higher rental reduction in the prime locations of 30 something percent altogether. In the non-prime location, actually, it's something like around 30% or a little bit higher. Basically, that's why the average reduction was not as high as we expected.
Okay. Thank you. My last question is about the same-store sales performance so far in October and November. Can you give us some highlights about the performance and which category, gold or gem-set, is doing better? Thank you.
Now, in fact, in October that was not very good, as mentioned in previous meetings. For October, because people may be waiting for the November or these coming promotion activities, that's why in the second half of October, it's not that good. The first half of October, actually, China was doing quite well because people would just stay home for the Mid-Autumn Festival there, so that they got more local consumption. The Hong Kong, Macau market was not that good in October because mainland visitors did not come because they just stayed at home. November seems to be getting better, especially in Hong Kong, Macau markets. We experienced double-digit growth again up to now. Since that gem-set is doing better in Hong Kong than gold, in mainland China, gold is doing better than gem-sets.
Thank you.
You are welcome.
Thank you. If anyone wishes to ask a question, please press star one on the telephone keypad. If anyone wishes to ask a question, please press star one on the telephone keypad. Our next question is coming from Jim Chan from Congress Hong Kong. Please go ahead.
Thanks, management. A bit of a big question. Can you give us a sense of what the competitive environment and trend is like for Hong Kong and China separately? Also within those markets for gold and gem-set separately, especially for diamond. I am officially interested to know who you see as your key competitors existing and emerging, and how you think about how those dynamics move forward in the future. Thanks.
Well, in Hong Kong market, it is more simple. You can see Chow Tai Fook and Chow Sang Sang and us are serving a very similar market. Of course, Chow Tai Fook is a lot bigger, and they have a longer history as well. Chow Sang Sang, they are actually moving away from the traditional market, and they try to project a more high-end image. In China, there are actually a lot of different brands, and there are some local brands and there are some international brands. For international brands, they usually exist in tier 1 cities. For local brands, they are usually targeting another segment, because we saw a research report saying that when people are looking for lower-end products, they will look for local brands. When they look for high-end products, they look for international brands.
When they look for mid to high-end products, they will prefer Hong Kong brands. So it is very clear that these brands, they all have a different market positioning. In China, I think that, again, our biggest competitors would be Chow Tai Fook because they actually have more than 2,000 shops in China, and we are both targeting the mass market as well. There are a lot of local brands that exist and emerging brands in China as well. Most of these brands more focus on a particular region rather than in China as a whole. So we think that the biggest competitor for now is Chow Tai Fook.
Okay. Just to follow up. For Hong Kong, I understand the main competitors are Chow Tai Fook and Chow Sang Sang, but for gemstones and for diamonds especially, is there any other dynamics going on either between you guys and the smaller players, independents, or between you guys and the foreign players? Do you see, for example, the tier 1 foreign players eventually taking more of the share in gemstones and diamonds? Or do you see you guys taking more of share from the smaller independents so that foreign power? Thanks.
Actually, for diamond products, and we have tried to discuss this before, when people buy diamonds, they would more look at the brand name first. So the credibility will be important for people to choose diamonds. In fact, within mainland China, actually, I guess for those high-end consumers, they may go for international brands more. For those mid-range mass market, they would be in favor from Hong Kong brands more. For low-end one, they may go to the local brands. So basically, with the population growth of the middle class in the coming period of time, we should expect more people to buy diamonds in future so that the diamond market in mainland will enjoy quite a good prospect. In terms of positioning, because we have got different positioning for different brands, so they would attract their respective target customer group within the mass market.
Okay, thanks. The second follow-up for China, for gold specifically. It is very fragmented, as you guys said. How do you think the competitive environment, the market shares between the mid-market player and the lower-end player will play out? Right now, or do you have a sense of the last few years, how has your margin, your gold gross margin have trended compared to the local competitors? Because one sense I am getting is the Hong Kong brand premium. The question is, whether that is sustainable versus the local brands. Thanks.
In fact, for the gold products, I guess the Hong Kong brand has a quite good brand name of a high gold content and better design. So it is still very attractive to the mass market, even though we may enjoy a high premium in terms of pricing. Basically, it is the same as the diamond market. The different positioning of the different brands would attract their respective target customer groups, in the gold category as well.
Okay, great. Okay, thanks.
You are welcome.
Thank you. Just want to remind again, if you wish to ask a question, please press star one on the telephone keypad. Once again, if you wish to ask a question, please press star one on the telephone keypad. Excuse me, Tiffany?
Yes.
We have no question at this point of time.
Okay. While we are waiting for the questions, let me follow up on the recent performance. For October and November, October a little bit weak for Hong Kong, because of the maybe a weak tourist arrival and then getting better in November. Double digit is for Hong Kong and Macau, correct, Kathy?
Yes.
What about China performance in October and November trend?
China performance is not as good as Hong Kong. It is still a growth, but a single digit only. Gold performed better than gem-set.
Why do you think China's growth is below Hong Kong?
Maybe people are waiting for the upcoming festivals. Normally with the upcoming festivals, there will be more promotional activities going on, and people nowadays wait for that kind of promotional activities to happen so that they would spend more, focus spending during that period of time. Other than the promotional activities period of time, people would just buy much less.
What about the wholesale trend in China that is similar to the same-store sales trend?
For wholesale, because we have got increased number of licensed shops, the wholesale trend should be better.
So for like-for-like basis?
I think they will follow the overall picture of the retail, but having some time lag.
Okay. Yeah. Hi, operator, is there any questions from the line?
Sorry, Tiffany, we do not have question at this point of time.
Okay, no problem. If there is no more question, we can conclude today's call. Thanks, Kathy Chan and Nancy Wong. Thanks everyone for joining. Thank you. Bye.
Thank you.
Thank you.
Bye-bye.
Bye-bye.
Thank you. The conference call has been concluded. Thank you for participating.