Chow Sang Sang Holdings International Ltd

HKEX:116

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. Wing Shing Chow; Executive Director and Group Deputy General Manager, Mr. Wun Sing Chow; and Chief Financial Officer, Mr. Shing Chi Tam.

The teleconference will be divided into 3 sections. First of all, we'll have Mr. Tam to walk us through the group interim highlights as well as the key financials. Then we'll have some latest business updates from our group manager. [Operator Instructions]

Before I turn the call over to Mr. Tam, may I give you our -- 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 is operating in 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 of 30th June 2018.

And with that, it's my great pressure to turn the call over to our Chief Financial Officer, Mr. Shing Chi Tam. Shing, please.

Okay, thank you. Good morning, everyone. As introduced, I'm going to talk about the business situations and also the latest update. I'll start with the overall situation of first 6 months of the year.

Basically, I would like to go over first of all the company's main structure business. Primarily, Chow Sang Sang Group's business is in jewelry retail, which is our main business and accounts about 90% of our overall revenue. And we focus our business in the Greater China region. And currently, overall we have over 500 shops. And we operate under 3 brand names. Chow Sang Sang being the main brand and Emphasis and 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. And the jewelry business generates about 90% of our overall revenue. And aside from that, we have 2 other business: one is the Precious Metal Wholesale Services, which basically handles buying and selling of physical metals and earn commission, which generates about 9% of our overall revenue. And there is another business, Securities Brokerage, which is an operation that only focuses on Hong Kong. Now we have 8 office and 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 properties, 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's not much change in the main operations and officer structure of the company. We continue to focus our objective development to the business. And moving forward, I'm going to focus primarily on the jewelry business operation situation. In terms of product that we carry in our jewelry business primary versus pure gold products, gem-set, and we do have some licensed products and also we have international brands just like -- 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. And on top of the physical shop setup, we do have our e-commerce business. We have our own website that handles by himself and also we work with other third-party platforms that 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 the Mainland China. We continue to expand by adding new shops. And for 2018, we will be focusing or targeting around 50 new shops in China.

Overall, 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, that recovery seems to be continuing despite in the second quarter, there's a lot of potential disruption coming from the trade dispute and also exchange volatilities.

I'll cover a little bit more about the situation in July and August later after I finish the overview.

And coming to the financial situation for the first 6 months, as mentioned, both market experienced growth and as a result, our turnover has increased by about 20% from a group's perspective. And gross profit improved to a similar extent slightly better and we maintain our overall gross margin at 24.7%, slightly better than last year same period.

In terms of operating profit, we reached almost HKD 800 million and had OP rate about 8.3%, roughly 45% increase from last year same period.

And as for the profit attributable to equity holder, the increase is around 55%. And that's 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. And if you look at the retail segment, our revenue increased by 20% -- around 23%, 24%, which is slightly higher than the group's average. And the OP result, the operating profit improved by about 46%, that's slightly shying off the [indiscernible] disposal gain that we have, which helped to add a few points to the bottom line.

Overall, this is -- 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 visiting Hong Kong has increased in the last 6 months and, overall, we see that also in our result. If we look at the purchase in Hong Kong coming from the tourist business, we notice that it increased from last year's entry of about 25% to this year about 50%. As a result, our business coming from Chinese customers has increased about 77%.

On some source of 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. And as a result, we see that overall growth as a percentage of our revenue mixed increase to 63%. Watch hold on that side, which is, to a certain extent, pretty better. It has been difficult to get more inventory or more stock.

And with regards to the profit contribution from different geographic location, we noticed that the split is roughly the same as last year, 61% from China, 38% from Macau/Hong Kong. And that's because China has been improving in the profit and revenue in double digit rate, Hong Kong increased as well and as such some of the ratio maintained.

Moving on to the average selling price per 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 1,200 -- HKD 12,400 per piece, about 4% higher than last year. We do see that in terms of gems and jewelry in Hong Kong, there is very strong performance in the last 6 months.

And for China, it goes more or less the same. In jewelry, we do see that we sell a lot more in quantity, but on average, the prices are slightly lower and there's a drop of about 8% there.

Working capital, we see improvements in turnover. We do see that the average inventory days has improved and dropped by over -- about 30% -- 30 days. That's the overall group's perspective. For retail business only, the retail -- 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's not much worth additional comment.

And this one come to the overall financial situation summary. So turnover improved [ mainly ] 20% and, similarly, gross profit delivered same amount in terms of rate of improvement. And net, the profit attributable to equity holders increased by about 54%. And the board proposed a dividend of $0.15 per share, which represent about 66% higher than last year same period.

After today -- after the first 6 months, we incurred around HKD 133 million of capital expenditure, higher than last year. Those increased, mainly a result of new shops and refitting of old shops plus our investment in expanding our production facilities in the [indiscernible] factory. We do expect that the overall capital expenditure will be around HKD 250 million to HKD 300 million this year with the rest to be incurred in the next 6 months.

Next, we have -- in terms of balance sheet situation, we have a stronger balance sheet with HKD 1.6 billion cash on hand, and we have to improve our gearing and there is still a considerable amount of banking -- unused banking facility [indiscernible].

With regard to our strategic outlook, there is not much change since our -- 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 not for sales and also complement our coverage via our e-shops operations. We'll continue with our self-run store model with -- because we believe that it fits better with our overall strategy and also give us higher integration in terms of various business channels.

Product-wise, jewelry focus and we'll 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. And since 2017, we have revamped our customer CRM database and now there we have over 2.5 million new hub members since our revamp added to the database. We will also capitalize on those informations. Regarding to marketing efforts, key is in the area of weddings and also continued expansion of daily wear.

That basically is a quick rundown on our financial situation for the first 6 months and our outlook in terms of strategic focus.

A quick 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 and both market we see positive same-store sales growth. Overall probably for -- even though we have not come to finish the month of August, but as we can see for China, probably we'll be looking at something like teens in same-store sales growth. And in Hong Kong, high teen and even more than that, that's what we're looking at. In both market, it looks like the gold is stronger than jewelry overall. And -- but nonetheless, Hong Kong jewelry is also pretty healthy for 2 months. So, 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 devaluation's impact on our business yet. We remain cautious as to what's going to happen in the next few months. But as I said, overall, at this point of time, we have not yet seen or have not seen any sign that -- clear sign that things are quickly turning south.

So I will stop here and open the floor for questions.

[Operator Instructions] Our question is Emily Lee from Nomura.

A couple of questions from my side. First 2 questions is regarding the China market. So if you were to look at the China same-store sales in the first half, it came in at 2% growth. It looked relatively weak, although 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 were 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 it is because we are giving out higher discounts on the existing products or old products? And in the MD&A, we mentioned that we have 2 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 the renewal? Lastly, as the wholesale business, I noticed that the revenue is up by 9%, but the operating profit is up by -- close to 40%. Any reasons they -- there is a surge in operating profit despite the revenue drop?

Emily, you have 4 questions, and I'll try to tackle them. And in terms of the wholesale business because that -- it depends on what product we sell. Even though the overall drop by 9% because apart from handling gold, we do handle platinums and also palladiums and those products. So there's a change in mix, which give us some help in terms of bottom line. And actually because the operation is so small and with such a small cost base, any swing in the top lines profit will -- top line revenue will have seemingly drastic impact on percentage. But overall, that business is not contributing in any -- very significant way to our business. But nonetheless, they are for some change in shift in the products that we are handling. Because they also have their own components targets, so they have to look for business sometimes to get a better result. And second question is on -- the last -- second last question you have about the 2 shops that we will need to renew. I think with these 2 shops, the renewal probably come from the last quarter or whether we will renew or not, that's the question also, because it will depend on how the negotiation go. So if the write-off is not favorable to us, then, as we said before, we will not hesitate to consider closing that. 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 cut or how significant we can -- how manageable capital we can expect. I mean, that's kind of difficult to predict, but I think we do expect that if we are to renew some rental downward adjustment, we probably are likely to have things like a year before 40%, 50% cut in rental cost for those 2 shops may be unlikely given that as we've been reporting that. So far, the retail business seems to be still okay. So there may not be as easy to give you in terms of rental. So we do -- in short, we do expect if we are going to renew, there will be some revenue -- I mean, there will be some rental adjustment downward. And as to the manager, probably be much -- will be smaller than what we experienced before. And 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. And then the other question you asked about is the average selling price per piece. Basically, I think, we are focusing heavy on the daily wear product. So naturally that will mean average piece's price will be a bit closer to what the consumer would like to see and 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 peer-by-peer 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. And -- but as I said, we do pay more attention to daily wear, and we do able to give 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 slight positive. And I think the trend has been improving since Q1 and Q2. And I think the area that we have is a bit of a challenge is to overcome the relatively high same-store sales growth rate last year, particularly in Q1, because -- and certainly with regard to the jewelry business, because in Q1 2017, our jewelry same-store sales growth was about 15%. And that we could not beat that in 2018 yet. And I think the other side of the business is that we -- our focus in terms of gold, normally we have -- pay more attention into the fixed price gold product, which normally has a slightly lower price tag. And 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 in terms of -- less strong in terms of how we see the performance. And we are looking in different ways to address that. We're not trying to change in our strategy. I was trying to push for more higher-margin products.

[Operator Instructions] Our next question is Anne Ling from Deutsche Bank.

I'm just wanted a quick question. Regarding the July and August number, it seems like China, you just mentioned that same-store sales growth is in teens. So does it mean that it's mainly driven by gold? And based on the current trends from business and/or maybe some of the other retailers, is it fair to say that in a way I see a little bit of a mini gold rush during this period? What do you think is driving that?

Well, I think we do have to say, we do see that gold is taken very favorably by consumers in this period of time, which -- in terms of in China -- in the business in China, it is a strong purchase. I don't think we are coming to a rush as we have seen in last 2, 3 times in the past few years. But if you're asking what are the reasons for that, we can only guess what are some of the reason why consumer want like more gold. I think some of that may be because in terms of the general environment in China, properties and all these assets, either have under quite close squeezing and control by the government. And the stock market is volatile. So to some consumer, I think gold will be something that they can use and also something that can have some value for storage. That's only one guess and other than that, what else we can say.

Okay. Yes. And another question is on the jewelry side. If you to take a look at July and August, if you strip out like just single out jewelry, are you seeing like there is any slowdown versus like in the second quarter? And would you just remind us if you take a look at the first quarter, second quarter breakdown, what is the same-store sales growth trend right in particular in the second quarter?

Second quarter for Hong Kong, we have more than 30% overall, and for China is about 1% -- no 2%.

So first quarter and second quarter is similar? Both 2%?

Yes, that's right. Yes.

Okay Got it. And 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 number?

Well, the month has not ended. It's still our guess. And obviously, because there are some timing difference between some of the promotion period between this year and last year. So we have a great run in the first half of August because of the [indiscernible] festival. Last year's festival is somehow at the end of the month. So this -- not today. So there will be some difference in performance, obviously.

Our next question [indiscernible] [ Apollo Investment ].

Three questions. The first one is the Internet sales. 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 party?

Yes. I would say, over 95% is from third parties.

[indiscernible]?

Sorry?

Sorry, it's a very bad line. Could you give me the split again? I couldn't hear that.

Okay. Your question is about what percentage of our sales in our [indiscernible] business is from our own site versus from third-party site. Over 95% of our sales is through third-party website, and primarily through Tmall, [indiscernible] and VIP.

Okay. And the second part is the new brand, the MINTYGREEN. And that you mentioned that as for the younger age, how do you see the market? You said a gap in the market? Or is the market -- that market you believe is growing, you're entering that?

We do see that there are opportunities, because, obviously, the consumption power of the younger generation is much stronger, and also, there are different types of channels and outlet that the younger generation frequent. So we see that there may be a chance for us to possibly introduce our brand to the younger generation in places where they visit instead of some of the current channel that they may not probably visit as much. Obviously, this is something that is involved, estimation of the potential. And also, that only started really this year. And so the number of shops are not many, and we are still looking at the -- how we may improve the model overall.

This is Vincent. Let me add a little bit on this MINTYGREEN thing. Our strategy is to not so much just to enter market. They're always in the younger -- we have always been catering to the younger segment of the population. But by means of MINTYGREEN, we want to shift. We want to really strengthen the focus on their needs. As much as customer experience, different kinds of decor, different kinds of service, not different in quality, but different in experience. But the merchandise -- we do have the same merchandise in the regular Chow Sang Sang. It's just that there would be a sharper focus.

Okay. And 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, this is -- we would like to be able to give us a chance to further improve by leveraging different advantage or strength of the 2 party. We do have a network and a setup in Hong Kong, while they do have the opportunities or the potential of introducing different customers. And also, we'll 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, options to look at -- look into.

Our next question is [ Ryan Lee ] from [ CIMB Capital ].

Just one quick question, will you be able to provide some data in terms of breakdown of peers in the region of China in terms of same-store sales growth? And if possible, would you be able to give us some [ lights ] in terms of the sales in July and August breakdown by region and peer business as well?

Well, we normally -- I can give you a flavor as regard to some of the -- how the various regions are sort of performing, but we don't normally share each region's same-store sales growth data. But -- so if we look at it, we do see that the -- what we call the West -- China West, which cover the cities, area like [indiscernible] and all these places [indiscernible] we are doing quite strong. And we do see that the Northern provinces, which are primarily in the [indiscernible] or those areas, they are having a tough time because, basically, the general economic situation in those places, which primarily related more -- relied more on heavy industries are not as good. So that also affect our overall performance. I think, the China East is sort of steady, which cover areas in the middle part of China, including cities like Shanghai. Also China South, which is closer to Hong Kong, they have a strong run in 2017. So this year, they are also working very hard. And besides, the -- some of the business are very related in Hong Kong as well. So if Hong Kong performs stronger, they will have a bit more pressure because some of the patches [indiscernible] in China South area. So total, 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.

Next question is Lina Yan from HSBC.

So first, given the very strong other business performance, what's your outlook on the rental cost in second half and also in next year 2018 -- 2019? So that's my first question.

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. They still have a chance to reduce a bit, but not far less significant than prior 18 months. And so as we still have still renewal, we talked about it, it's the big one, so that could still give us some benefit moving forward to 2019 with regard to overall rental cost in Hong Kong. So we probably -- it's fair to say that, probably, we'll still see some reduction in rental cost moving forward in 2019.

Okay. That's very good. And given like a very strong performance in first half, have you revised your store expansion plan, especially in Hong Kong and Macau? And any changes in megastore closure or like opening in this region?

Yes. We have improvement in Hong Kong. But if one just look at it, we have not reached to the level as we had, the highest point -- from a higher point in the past few years. So 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 we're in Hong Kong, there's also the challenge of getting enough people for our shops. So answer regarding to opening, we're not really opening new shops. Where there are right opportunities, but we have no aggressive plan to say, okay, we -- given the performance this 6 months, we are going to change our view of just realigning our network instead of expanding in a significant way. And as for China, our -- 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. We are -- if opportunity arise, we may open more than 50. If there's no good locations, then we may open slightly less. And I think you probably can see that in the last 2 years. So in some years, we aim at 50, but we only end up about 35. And last year, we reached about 48. And this year, you may look at -- it's probable we will do 50. And if opportunity allows, maybe a little bit more.

Okay. That's very good. And also, related to the last investor's questions, on by city tier performance. So my question is, given the pickup in same-store sales in July and August in China, and any changes in the by region performance, if you qualify them as strong task and steady and like also okay for the West, North, East and South China in first half, any changes in the momentum in the August -- July, August, 2 months periods?

At this point of time, we don't see significant change. There's just 1.5 months of result. We're actually more focused in August than July. So I don't think it's fair to say, okay, because of that, we believe the whole situation have changed, just like I don't believe that the current situation in the north 3 provinces will change overnight. That's still the primary driving force in terms of why people spend on discretionary items.

Okay. And I have very -- like a final question. Can you give us some like by channel performance like department store and shopping malls in China in first half?

Currently, in terms of shopping mall and department stores, the split is about [ sunshine ] of 20% of our store is in shopping malls, and about 80% is in department stores. Of course, given 1 to 2 percentage on street-level, but that is very few. On average, I think, overall, the difference is not significant at this point in time. Of course, in different locations, you'll see varied performance. Some department stores do extremely well and similarly for some shopping mall also. So it's very hard to say which one model is better. In the past, we do believe that department store give us a better cost base to work at because we don't have to pay rent unless we get mixed sales. But now I think the environment has also changed whereby the shopping mall is an attraction in terms of the whole package of offer in the complex. That helps to attract people. And some of the department store are also engaging to different mode of compensation, whereby they have also sort of a base rent that we need to handle as well. So when you look at the last 2, 3 years, probably, we do see that there's a gradual improvement in the shopping mall performance. At this point, on average, I think, the department store is still slightly better than the shopping mall overall, if you take an average.

Next question is Linda Huang from Macquarie.

I have 2 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 point. So I just want to figure out that, what is the factor behind that, even we have higher gold, the product mix, but we still can see the gross margin expansion? And does that imply that in the second half, even though we see that as strong gold consumption, are we still likely to see the gross margin improvement on year-on-year basis? The second question is regarding for online. Can you share with us more about your online, the operation, including how much of the growth rate in the first half? And what is your expectation for second half in 2019? And in terms of the consumer behavior for online shopping, such as like by gender and growth in jewelry mix, et cetera?

Okay. I'll tackle the gross margin questions 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, and we tend to focus more on what we call the fixed price gold, also generates small item per piece and naturally lower in terms of sales price per piece. But that fixed price gold is having high -- have higher margin than the normal calculated price gold. That's one of the reason why we see that even though our gold increased, but our margin did not necessarily deteriorate. And secondly as regard to the mix shift a little bit, because overall, as we continue to grow China, China's general gross margin is higher than Hong Kong. So that will also help us. And thirdly, from a group perspective, that margin is a group margin. We do see that in our wholesale business has dropped in revenue, because their contribution is not high within the gross margin. So from a group perspective, a shift in more business from retail will naturally increase the gross margin. So those are the 3 factors that contribute to that. So I guess, I'll continue to focus on fixed price gold. We'll carry on. And also, our China growth, we believe, will still be steady. So 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 maybe 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. And then, about the online picture, we -- for first half, our online business growth, about 23%, and first -- in the first 6 months compared to last year. And that growth accelerated a bit in July and August. Our primary product that we sell online are gold and platinum. These 2 categories account for about 90% of our product that's sold through the e-commerce. And the 10% -- about 10% is jewelry and K-gold. And the price -- average price per piece is about HKD 1,200. So as you can see, they are relatively lower price range products. And having said that, even though about 75% of our products in the e-commerce is gold, but of that 75%, slightly more than half of those revenues are from what we call the fixed price gold. So it is generating reasonably good margin, margin that is comparable to jewelry margin. And I think our view is that new business will continue to be a very important channel for us moving forward. And obviously, as our base grow, currently, it already account for about 14% to 15% of our total revenue in China, so the speed that it can expand as a percentage probably not expect to maintain at a high speed moving forward like 2 years ago. Probably, I'll be sharing with you a figure something like 60%, 70% year-on-year growth. And now, we come to -- like even the year before, I was talking about 35% to 40%. Now it's about 20%, 25%. So probably it is fair to expect that we'll 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. And the people who buy from us basically are the younger ones, below 30s. And we still see that female is more than male in terms of gender. So that's a rough picture of our e-business.

Can I have a follow-up question is that for fixed gold product, is it fair I say that its gross margin is similar to non-gold jewelry? Or it's in between gold and non-gold?

It all depends on the product. The range would be anywhere from 30% to 40%.

Okay. And the other one is for online. Online profit margin, is it better than offline or inline?

Well, online profit margin is better than the...

The next question is [ Raymond Yang ] from [ Autonomous Capital ].

Just maybe 2 questions that I have. One is actually a follow-up on Anne's question previously. When we talked about like July and August same-store sales trend in China, we are seeing a improvement. But can you give us any color that might be viewed -- you mentioned that it might be because of gold. So if we talk about this on jewelry side, how is the July, August trend versus first quarter and second quarter? And 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?

I think, in terms of the jewelry side of China first, good questions. For July and August, we are looking at about a teen sort of number in terms of jewelry. And -- but as I said, it depends on how these 2 -- this weekend will end up to see the final figure. But that's 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 there is -- obviously, we do not have a traffic counter that we can give a clear picture, but if you look at the number of transaction that's carried through, as we mentioned, we have -- in China, we have low average price, but we do have improvement in terms of overall sales. So we do see that improving in Hong Kong is even more obvious. The tourist business has improved a few percentage point, and overall sales in terms of dollar increased by over 20%. I mean, even if you look at the physical quantity of products sold, we are also looking at more than teen increase. So -- and also, by -- I see that from the frontline is the traffic is actually improved in the last 2 months. Even if we look at the tourist visitation, I think, the July -- the June numbers are stronger than the first 6 -- first 5 months of the year.

Our next question is [indiscernible] Investments.

The dividend payout ratio and the balance sheet is very healthy with a lot of cash. And once the CapEx for this is finished, would management consider a higher payout ratio? And if not, what is the rationale behind it?

I think we are always flexible in terms -- we have not fixed the rate in terms of what the payout should be. It's 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 and cash. I think, obviously, for example, in the last few years when we have some extra ordinary income, we do pay extra. And also, if, obviously, we do not see further opportunities to invest, there's no point to 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're 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. So we are certainly taking a slightly more conservative point of view in terms of the way we pay dividend for the first half.

Our next question is Linda Huang from Macquarie.

One quick question. Regarding for the effective tax rate, I want to know that, what was your guidance for the full year? Because we know that Hong Kong contributions is increasing. So could you give us some visibility for the second -- and particularly for the second half effective tax rate?

At this point of time, probably, I would say similar to first half.

25%?

Slightly short of that, but not there yet, yes.

And 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.