Incident: In 2023H1, the company achieved operating income of 1,242 billion yuan, -40.45% year-on-year, net profit of 53 million yuan, -90.77%, net profit after deducting non-return net profit of -49 million yuan, -110.07% year-on-year.
Macro endogenous motivation is insufficient, and channel strategies are actively optimized. 2023H1 Macroeconomic endogenous motivation is insufficient, customers have a precautionary saving mentality, favoring gold with more value-preserving and safe-haven properties, and retail demand for diamond jewelry is under pressure. 2023H1 engagement ring/wedding ring revenue was 964/261 million yuan, -41.70%/-33.27%, respectively; online/offline revenue was 122/1,118 million yuan, -43.85%/-39.28%, respectively. By the first half of '23, the number of stores had dropped by 12 to 676; the revenue per direct/joint store was 1,6175,500 yuan, or -56.41%/-51.56%, respectively. The company actively adjusted its channel strategy, optimized inventory of existing stores, and looked forward to a gradual recovery in demand.
Rate spending remains high, and profitability is under pressure. 23H1's gross profit margin was 69.29%, year-on-year -1.34 pcts, and 2023H1's sales/management/R&D expenses ratio was 55.86%/6.17%/1.16%, respectively, +23.88/+2.54/+0.72 pcts. The store scale expanded dramatically, and rigid expenses such as store rent and personnel costs increased, resulting in sales expenses growing faster than revenue growth. Overall, 23H1's net interest rate was 4.30%, year-on-year - 23.44 pcts.
The concept of true love is the cornerstone, and “product+scenario” builds core competitiveness in multiple dimensions. The DR series pours countless ingenuity, has won many global awards and new international patents, and is favored by the dating community; it accurately focuses on the “proposal - preparation - marriage” scenario positioning, covers the entire “marriage ecosystem” industry chain, and continuously improves the breadth and depth of service; in the face of rising customer acquisition costs and serious internal entanglement in the industry, the company has achieved a differentiated position among many jewelry brands with its unique brand concept and excellent product design, which is highly compatible with the spirit of contemporary young newcomers, and has become a global leader in true love culture.
Investment advice: Retail demand in the diamond inlay market fell short of expectations. We lowered our profit forecast. We expect the 2023-2025 EPS to be 0.48/0.88/1.38 yuan, corresponding to the latest PE, 71.9/39.5/25.3 times, respectively, maintaining the “growth” rating.
Risk warning: industry competition intensifies; demand for wedding jewelry falls short of expectations.