Incident: The company released 23H1 results, achieving revenue of 829 million yuan, an increase of 18.1%, net profit of 51 million yuan, an increase of 42.7%, net profit of non-attributable income of 44 million yuan, an increase of 29.4%. 23Q2 achieved revenue of 485 million yuan, an increase of 32.1%, net profit attributable to mother of 104 million yuan, an increase of 60.8%, net profit of non-attributable income of 119 million yuan, an increase of 37.1%. The increase in government subsidies led to an increase in other income categories. 23H1 was 8.91 million yuan, an increase of 347% over the previous year.

Comment:

Sujin jewelry contributed mainly to the increase, and the increase in its share was the main reason for the decline in gross margin. By product, 23H1 plain gold/inlaid jewelry achieved revenue of 739/85 million yuan respectively, +31%/-37% year on year, gross profit margin 14.45%/45.17%, and +0.74/-0.61 PCT year on year. The 23H1 sales/management expenses ratio was 7.24%/3.61%, down 0.08/0.22PCT from the previous year, respectively. The overall gross profit margin was 18.1%, down 2.2 PCT from the previous year. We believe it was mainly due to the increase in the share of sales of gold jewelry with a relatively low gross margin; the gross profit margin was 6.15%, an increase of 1.06 PCT over the previous year.

23H1 has 1 Jingguan store. The stores have covered 8 provinces and 1 city. As of 2023.6.30, the company has a total of 209 stores and 1 clean store, including 29 directly-managed stores, 2 directly managed stores, 67 franchised stores, 1 Jingwan, and 113 kiang/2 stores. The newly developed markets in the first half of 2023 were mainly concentrated in the mature market Jiangsu and Zhejiang regions.

Online growth is impressive, while offline is basically the same. By channel, 23H1 direct-run store/e-commerce store/store/franchise/consignment sales achieved revenue of 0.85/3.28/2.27/1.84/0.1 billion yuan respectively, compared with +12.01%/+62.73%/-6.38%/+3.33%/-11.04%. The gross margin of each channel was 31.91%/14.29%/24.18%/8.97%/19.80%, respectively, and -2.1/-2.76/-0.64/-1.63/-7.09PCT, respectively. Among them, offline revenue was 496 million yuan, which was basically the same as the previous year; the e-commerce channel showed relatively rapid growth; the Tmall channel achieved revenue of 220 million yuan, an increase of 129.34%; online revenue accounted for 39.51% of revenue, an increase of 10.85 PCT over the previous year. The company has comprehensively increased the scale of online sales through marketing methods such as in-depth cooperation through existing channels, new channel expansion, and live streaming. At the same time, by building a new online retail platform, the company empowers offline consumption, promotes online sales by improving the experiential feedback of offline stores, and realizes omni-channel collaborative development.

Successfully completed fixed growth to help channel & brand building. In July 2023, the company successfully issued shares to specific targets. The number of shares issued was 57 million, and the total capital raised was 691 million yuan. The funds raised will mainly be used for the “Mankaron @Z Concept Store” terminal construction project, the construction of an integrated omni-channel jewelry platform, and the “Mu Can” brand and creative promotion project.

Profit forecast: The company is a regional jewelry leader with differentiated product design capabilities. We expect the company's net profit to be 0.71/0.88/105 million yuan in 2023-2025, an increase of 31%/23%/20%. EPS is 0.27/0.34/0.40 yuan respectively, corresponding to PE 54/44/37X.

Risk factors: Gold prices fluctuate sharply, jewelry stores fall short of expectations, and e-commerce channel profitability falls short of expectations.