Company advantages (1) One of the leading manufacturers and wholesalers of high-quality jewelry in Hong Kong, with solid and close business relationships with global customers; (2) strong design ability to meet the preferences of end customers; (3) the manufacturing team is experienced and highly skilled, and the jewelry products are of excellent quality and design; (4) diversified customer base, low geographical risk and seasonal influence; (5) experienced, stable and responsible management team.

Industry Overview Global retail sales of quality jewelry products increased from about HK$466.2 billion in 2010 to about HK$630.9 billion in 2014, with a compound annual growth rate of about 7.9%. The increase in global retail sales of high-quality jewelry products is due to the improvement in the global economy after the 2008 global financial crisis, and people have more disposable income to buy high-quality jewelry products as accessories and/or investments. As the Asian and Middle Eastern markets continue to grow, total retail sales are expected to increase steadily from around HK$730.8 billion in 2015 to around HK$799.6 billion in 2019 at a compound annual growth rate of around 2.0%. Increasing demand from developing countries (such as China, India, and the UAE) drives global retail sales of fine jewelry products. At the same time, the continuous increase in global disposable income and the increasing investment value of diamond and jewelry products are becoming more and more beneficial to sales growth.

From 2010 to 2014, the total import value of quality jewelry products in the Middle East increased from about HK$387,132.0 million to about HK$631,006.7 million. The compound annual growth rate for this period was approximately 13.0%. As an emerging gold and jewellery hub for traders, consumers and tourists, the total import value of quality jewelry products from the Middle East continued to rise in 2014, particularly products from jewelry manufacturing regions such as China and India.

Since 2010, Dubai in the UAE has been the center of gold and diamond jewellery in the Middle East region, and the production value of high-quality jewellery in the region grew strongly by about 9.4% between 2013 and 2014. Total retail sales of fine jewellery products in the UAE increased from about HK$6,898.2 million to about HK$9,719.8 million from 2010 to 2014, with a compound annual growth rate of about 8.9% over the period. The UAE saw an increase in diamond jewellery sales, accounting for 47% of fine jewellery sold in 2013. Total retail sales of fine jewellery in the UAE are expected to grow from about HK$10,625.5 million in 2015 to about HK$15,005.9 million in 2019, at a compound annual growth rate of about 9.0%.

The total revenue of Hong Kong's high quality jewelry manufacturing and wholesale (export) industry increased from about HK$5,250.3 million in 2010 to about HK$9,210.3 million in 2014, at a compound annual growth rate of about 15.1%. The total revenue of Hong Kong's high quality jewelry manufacturing and wholesale (export) industry experienced a sharp increase from 2010 to 2012, as disposable income increased due to global economic recovery during this period. The total revenue of Hong Kong's high quality jewelry manufacturing and wholesale (export) industry is expected to continue to increase at a CAGR of about HK$9,394.7 million in 2015 to approximately HK$10,191.8 million in 2019 at a CAGR of about 2.1%. It is expected that Hong Kong's total revenue from manufacturing and wholesale quality jewelry will continue its upward trend due to the continued rise in the prices of high-quality jewelry raw materials (such as diamonds and gold) and the growth of the middle and high-end segments of the quality jewelry market.

Hong Kong's high-quality jewellery manufacturing and wholesale (export) industry is developing rapidly. The global export volume of Hong Kong's high quality jewellery increased by about HK$21,073.2 million between 2010 and 2014. There was a trend where diamond jewellery manufacturers and wholesale exporters merged or increased their main business capacity to increase competitiveness and revenue in Hong Kong's emerging high quality jewellery export market.

Profitability and financial figures are calculated based on the track record of the past 3 years. The Group's revenue regressed from HK$542.8 million in fiscal year 2012 to HK$516.2 million in fiscal year 2014; net profit increased from HK$81.0 million in fiscal year 2012 to HK$90.4 million in fiscal year 2014, with a compound annual growth rate of 5.7%. The decline in earnings during the track record period is related to changes in customer demand and preferences. The reason is that they prefer high-quality jewelry products that are simple in design and use fewer materials, leading to products that require fewer raw materials, so that the average unit price and revenue declined even as product sales increased.

The purpose of the fund-raising is HK$106.5 million (calculated at the median sale price of HK$1.165 per share) of the proceeds from this fund-raising will be used for the following purposes: approximately 37.5% will be used to hire sales teams with relevant experience to expand high-end markets in the Middle East and Europe and participate in well-known and high-end European jewelry fairs; approximately 32.9% will be used to purchase new 3D printers to upgrade existing production facilities and replace equipment and machines used for inlaying, cutting and electroplating gemstones; installing RFID inventory systems at Baofa factories; and hiring and training with experience and related skills and skills additional staff; approximately 22.0% will use brand development, including investing in brand image upgrading activities by hiring a professional marketing team to upgrade the brand image, refurbish the VIP showrooms in the Hong Kong office and Dubai office, provide better services to high-end customers and set up different production lines to produce high-quality, high-quality jewelry with relatively simple designs and low wholesale prices to further expand the customer base; about 4.7% will be used to introduce radio frequency identification inventory technology at various jewelry fairs to collect computerized data on visitors' consumption habits to improve customer relationship management systems; about 2.9% will be used for additional operating capital and other general enterprises uses.

The valuation is based on the prospectus price of HK$0.93 to 1.40, and Baofa Group's historical price-earnings ratio is about 4.6 to 7.0 times; the market account ratio is about 0.82 to 1.13 times. Henghe Group (513.HK), which also designs, manufactures and sells jewelry, has a historical price-earnings ratio of about 5.4 times and a market account ratio of about 0.4 times; Minsheng Jewelry (1466.HK)

The historical price-earnings ratio is about 37.5 times, and the market account ratio is about 1.4 times; the historical price-earnings ratio of KTLINTERNATIONAL (442.HK) is about 13.3 times, and the market account ratio is about 1.05 times; Baofa Group's valuation is reasonable. The growth of the Group's business has slowed in recent years, but the amount of capital raised is a popular target of hype in the market, so the subscription should be short-term rather than medium- to long-term holdings. Recently, there have been no new stocks that have attracted attention, and no large amount of capital has been locked in. We do not rule out that this stock has a high subscription amount. We suggest investors can subscribe in small lots.