Chow Tai ?$#@$ was founded in 1929 and operated the Chow Tai Fu brand in the early days. After 2014, the company gradually developed into a multi-brand jewelry group. The Chow Tai ?$#@$ brand has a history of 100 years and is extremely well known in the industry. FY2021 proposed the “Dual Dynamics Strategy” and is committed to providing customers with a comprehensive, diversified and seamless shopping experience by implementing both “real power” and “cloud power”. The compound annual growth rate of the company's total operating income in the past five years has reached 4.4%, and the compound annual growth rate of net profit of the mother has reached 15.4%.
Industry Overview: Gold jewelry sales are hot, and long-term companies enjoy considerable room for growth. Looking at gold jewelry in the short term, the domestic jewelry industry is selling hot. In 2021, retail sales of gold and silver jewelry products per unit above the limit in China increased 29.8% year on year, far higher than other categories, and gold jewelry sales of 711.29 tons in 2021 increased 44.99% year on year. Looking at the long term, domestic consumption is currently being upgraded. At the same time, the introduction of ancient French gold and 5G gold has led to the upgrading of gold jewelry processes. As a leading gold jewelry group, Zhou Dafu enjoys considerable room for growth.
Brand side: Focus on customer-oriented and create a personalized brand matrix. “Chow Tai Fu” is the company's iconic brand. It has maintained a “sincere and timeless” approach to hospitality for many years. According to “World Brand Lab” data, the “Chow Tai Fu” brand value reached nearly 81.7 billion yuan in 2021, far higher than other local jewelry brands, and has steadily ranked first in the brand value list of jewelry companies over the past 10 years. In 2014, the company began to build a differentiated and personalized jewelry brand matrix, extending its original mid-range and high-end positioning to both high-end and youthful ones.
Product side: Flexible production+exquisite two-wheel drive, opening a new era of consumption. In 2018, the company first tried to combine ancient French gold craftsmanship with national fashion style, and launched the “Heritage” series. Once the product went on sale, it received widespread acclaim. The FY2022H1 Heritage series products accounted for 43.3% of the retail value of gold jewelry and products, which also led to a continuous rise in the average selling price of the company's gold jewelry products. The company has established a vertically integrated business model, which can effectively and carefully monitor the Group's overall business operations.
Channel side: Open up omni-channel operations and increase the sinking market. 1) Offline channels: As the consumption power of the sinking market increases, the company uses franchisee channels to accelerate the expansion of low-tier cities. As of September 30, 2021, “Chow Tai Fu Jewelry” had 4722 stores in the mainland. The number of stores in third-tier cities and below accounted for more than 45% of stores, and franchisees accounted for nearly 70%. We judge that the implementation of the company's “real power” strategy will continue to drive the number of stores in low-tier cities to expand. At the same time, stores in high-tier cities will focus on upgrading and optimizing existing stores to improve store efficiency; 2) Online channels: the company focuses on online business expansion, Retail sales of FY2021 e-commerce and O2O related businesses increased by more than 90% year-on-year, and the “cloud power” strategy launched by the company in the same year will continue to drive smart retail (including e-commerce and retail technology) business development.
Profit forecasting and investment advice: As a leader in the jewelry industry, the channel side accelerates the expansion of low-tier cities, optimizes R&D and design on the product side, while paying attention to consumer reach. We expect the company's FY2022-2024 net profit to be HK$70.11/85.04/10.174 billion respectively, with a growth rate of 16.3%/21.3%/19.6%. The current price is HK$13.06, corresponding to PE 19 times in '22, covering our “buy” rating for the first time.
Risk warning: risk of repeated domestic epidemics; risk of gold price fluctuations; risk of increased market competition; risk of exchange rate fluctuations.