HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/luk-fook-holdings-international-limited" target="_blank" data-smartkarma-citation="entities:19054:1" rel="noopener">Luk Fook (590 HK)</a>'s growth surpassed that of <a href="https://www.smartkarma.com/entities/chow-tai-fook-jewellery-group-limited" target="_blank" data-smartkarma-citation="entities:549:1" rel="noopener">Chow Tai Fook Jewellery (1929 HK)</a>'s in 2H FY26, providing evidence for its underlying operational resilience.  </li>
<li>CTF's 44.1% RSV growth for 1 Apr-31 May in HK is poised well for LF, given LF's higher exposure to HK, generating 69.4% of FY26 segment profit. </li>
<li>
<a href="https://www.smartkarma.com/entities/luk-fook-holdings-international-limited" target="_blank" data-smartkarma-citation="entities:19054:1" rel="noopener">Luk Fook (590 HK)</a>'s valuations are attractive, with a PER of 5.8x, a yield of 8.8%, and a P/B of 0.8x for FY27, vs. 11.1x, 6.8%, and 3.3% for CTF.</li>
</ul>



Luk Fook (590 HK)'s growth surpassed that of Chow Tai Fook Jewellery (1929 HK)'s in 2H FY26, providing evidence for its underlying operational resilience.  
CTF's 44.1% RSV growth for 1 Apr-31 May in HK is poised well for LF, given LF's higher exposure to HK, generating 69.4% of FY26 segment profit. 

Luk Fook (590 HK)'s valuations are attractive, with a PER of 5.8x, a yield of 8.8%, and a P/B of 0.8x for FY27, vs. 11.1x, 6.8%, and 3.3% for CTF.


China Pair Trade Update: Long Luk Fook (590 HK), Short Chow Tai Fook (1929 HK)

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Cross Asset Strategy

<ul>
<li>Hong Kong Alpha portfolio gained 8.45% in September and 60.89% and 62.80% YTD and since launch one year ago.  The portfolio has outperformed Hong Kong indexes by more than 40%.</li>
<li>The portfolio has a Sharpe ratio of 3.23 YTD and has generated more than 40% of its returns from stock-picking (alpha).  Its beta is low at only 1.17.</li>
<li>At the end of September, we increased exposure to AI and robotics and sold positions in the consumer and finance sectors.</li>
</ul>


Hong Kong Alpha portfolio gained 8.45% in September and 60.89% and 62.80% YTD and since launch one year ago.  The portfolio has outperformed Hong Kong indexes by more than 40%.
The portfolio has a Sharpe ratio of 3.23 YTD and has generated more than 40% of its returns from stock-picking (alpha).  Its beta is low at only 1.17.
At the end of September, we increased exposure to AI and robotics and sold positions in the consumer and finance sectors.


HONG KONG ALPHA PORTFOLIO: (September 2025)

Thematic (Sector/Industry)

<ul>
<li>There is an increasing likelihood that the duty-free quota of mainland tourists visiting Hong Kong will rise to Rmb30,000 from Rmb5,000. This will benefit many retail-related sectors.</li>
<li>
<a href="https://www.smartkarma.com/entities/luk-fook-holdings-intl-ltd" target="_blank" data-smartkarma-citation="entities:19054:1" rel="noopener">Luk Fook Holdings (590 HK)</a> is the best play among jewellery retailers given it has 65% of revenue from Hong Kong. <a href="https://www.smartkarma.com/entities/sa-sa-international-hldgs" target="_blank" data-smartkarma-citation="entities:20143:1" rel="noopener">Sa Sa International (178 HK)</a> is the cosmetics play.</li>
<li>Property investors including <a href="https://www.smartkarma.com/entities/wharf-holdings-ltd" target="_blank" data-smartkarma-citation="entities:51:1" rel="noopener">Wharf Holdings (4 HK)</a> and <a href="https://www.smartkarma.com/entities/hysan-development-co" target="_blank" data-smartkarma-citation="entities:14169:1" rel="noopener">Hysan Development Co (14 HK)</a> will gain from the shopping malls in major tourist areas in Hong Kong.</li>
</ul>


There is an increasing likelihood that the duty-free quota of mainland tourists visiting Hong Kong will rise to Rmb30,000 from Rmb5,000. This will benefit many retail-related sectors.

Luk Fook Holdings (590 HK) is the best play among jewellery retailers given it has 65% of revenue from Hong Kong. Sa Sa International (178 HK) is the cosmetics play.
Property investors including Wharf Holdings (4 HK) and Hysan Development Co (14 HK) will gain from the shopping malls in major tourist areas in Hong Kong.


Increasing HK Duty Free Quota: The Beneficaries

Chow Tai Fook Jewellery / Equity Bottom-Up

<ul>
<li>The 4Q FY26 operating statistics suggest that <a href="https://www.smartkarma.com/entities/luk-fook-holdings-intl-ltd" target="_blank" data-smartkarma-citation="entities:19054:1" rel="noopener">Luk Fook Holdings Intl (590 HK)</a> is outperforming <a href="https://www.smartkarma.com/entities/chow-tai-fook-jewellery-group" target="_blank" data-smartkarma-citation="entities:549:1" rel="noopener">Chow Tai Fook Jewellery (1929 HK)</a> due to its Hong Kong exposure.</li>
<li>Since entering 2026, Luk Fook has outperformed Chow Tai Fook by a significant margin of 9pp. We believe such a trend will continue for the rest of the year. </li>
<li>Our "Long Luk Fook, Short Chow Tai Fook" strategy is further supported by Luk Fook's cheaper PER and PEG multiples. </li>
</ul>


The 4Q FY26 operating statistics suggest that Luk Fook Holdings Intl (590 HK) is outperforming Chow Tai Fook Jewellery (1929 HK) due to its Hong Kong exposure.
Since entering 2026, Luk Fook has outperformed Chow Tai Fook by a significant margin of 9pp. We believe such a trend will continue for the rest of the year. 
Our "Long Luk Fook, Short Chow Tai Fook" strategy is further supported by Luk Fook's cheaper PER and PEG multiples. 


China Pair Trade: Long Luk Fook (590 HK), Short Chow Tai Fook (1929 HK)

<ul>
<li>The market's assumption of no special dividends in <a href="https://www.smartkarma.com/entities/chow-tai-fook-jewellery-group" target="_blank" data-smartkarma-citation="entities:549:1" rel="noopener">Chow Tai Fook Jewellery (1929 HK)</a>'s upcoming FY24 result is conservative, and this does not fit into its usual pattern. </li>
<li>Should it pay special DPS, the dividend yield may reach an attractive 10.7%. With its net cash position, CTF can financially maintain the average 135.6% payout ratio. </li>
<li>A return to its historical average dividend yield of 7.4% means that CTF's share price will need to go up by 45% from the current level.</li>
</ul>


The market's assumption of no special dividends in Chow Tai Fook Jewellery (1929 HK)'s upcoming FY24 result is conservative, and this does not fit into its usual pattern. 
Should it pay special DPS, the dividend yield may reach an attractive 10.7%. With its net cash position, CTF can financially maintain the average 135.6% payout ratio. 
A return to its historical average dividend yield of 7.4% means that CTF's share price will need to go up by 45% from the current level.


Chow Tai Fook (1929 HK): What if Special Dividends Are Declared?

Hong Kong

Luk Fook Holdings (International) Limited is a leading Hong Kong-based investment holding company primarily engaged in the sourcing, designing, wholesaling, trademark licensing, and retailing of gold, platinum, and gem-set jewelry products. The company also provides jewelry authentication services. It was founded in 1991 and is headquartered in Hong Kong.

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Luk Fook (590 HK)

China Pair Trade Update: Long Luk Fook (590 HK), Short Chow Tai Fook (1929 HK)

Luk Fook's 1Q FY27 retail sales revenue surged 32% YoY, beating Chow Tai Fook's Apr-May YoY growth of 14.7%. While its HK& Macao growth of 41% is...

Osbert Tang, CFA

HONG KONG ALPHA PORTFOLIO: (September 2025)

Due to the sudden escalation of US/China tensions we have decided to reduce AI and other risk exposure in the Hong Kong Alpha portfolio at the open...

David Mudd

Increasing HK Duty Free Quota: The Beneficaries

Potential increase in duty-free quota for mainland visitors to Hong Kong to benefit retail sectors, with Luk Fook as the top jewellery play, Sa Sa...

Osbert Tang, CFA

China Pair Trade: Long Luk Fook (590 HK), Short Chow Tai Fook (1929 HK)

Luk Fook issued a positive profit alert, saying that FY26 net profit will grow by 80-90%, well ahead of Chow Tai Fook's 45-55% growth. For 2H FY26...

Osbert Tang, CFA

Chow Tai Fook (1929 HK): What if Special Dividends Are Declared?

The market's assumption of no special dividends for CTF's FY24 result may be off - potential for an attractive 10.7% yield. The share price could...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China Pair Trade Update: Long Luk Fook (590 HK), Short Chow Tai Fook (1929 HK)

Luk Fook's 1Q FY27 retail sales revenue surged 32% YoY, beating Chow Tai Fook's Apr-May YoY growth of 14.7%. While its HK& Macao growth of 41% is...

Osbert Tang, CFA

HONG KONG ALPHA PORTFOLIO: (September 2025)

Due to the sudden escalation of US/China tensions we have decided to reduce AI and other risk exposure in the Hong Kong Alpha portfolio at the open...

David Mudd

Increasing HK Duty Free Quota: The Beneficaries

​Potential increase in duty-free quota for mainland visitors to Hong Kong to benefit retail sectors, with Luk Fook as the top jewellery play, Sa Sa...

Osbert Tang, CFA

China Pair Trade: Long Luk Fook (590 HK), Short Chow Tai Fook (1929 HK)

Luk Fook issued a positive profit alert, saying that FY26 net profit will grow by 80-90%, well ahead of Chow Tai Fook's 45-55% growth. For 2H FY26...

Osbert Tang, CFA

Chow Tai Fook (1929 HK): What if Special Dividends Are Declared?

​The market's assumption of no special dividends for CTF's FY24 result may be off - potential for an attractive 10.7% yield. The share price could...

Osbert Tang, CFA

Potential increase in duty-free quota for mainland visitors to Hong Kong to benefit retail sectors, with Luk Fook as the top jewellery play, Sa Sa...

The market's assumption of no special dividends for CTF's FY24 result may be off - potential for an attractive 10.7% yield. The share price could...