Chow Tai Seng Jewellery (002867.SZ): Franchise reset; recovery in focus

Initiate at Neutral with TP of CNY10.44, implying 2.2% upside. Chow Tai Seng is primarily engaged in jewellery design, marketing and chain store operations. Gold price volatility, franchisee destocking and franchise store adjustments are weighing on near-term revenue. We expect growth in self-operated and e-commerce businesses to partly offset franchise contraction, and forecast a 3.8% revenue CAGR over 2026-28F. We believe growth in the self-operated business, the rationalization of underperforming franchise stores should improve overall channel quality, although proactive store closures, brand investment and inventory write-downs could weigh on the pace of earnings recovery. We forecast a net profit CAGR of 9.8% over 2026-28F. For valuation, we apply a target P/E of 10x, at a discount to the peer average 2026E P/E, to reflect uncertainty over the pace of franchise channel adjustment and earnings recovery, while the company's relatively high payout provides some valuation support. Bas