Recently, Mengjinyuan Gold Jewelry Group Co., Ltd. (hereinafter referred to as "Mengjinyuan") submitted a prospectus to the HKEx, with CITIC as its exclusive sponsor, according to the Hong Kong Stock Exchange.

It is worth mentioning that Mengjinyuan was listed on the Shenzhen main Board in 2020 under the recommendation of Zhongtai Securities, but the company's A-share application was not approved because of the commercial reasonableness of used materials business activities. and the difference between the unit price of gold material inventory and gold jewelry inventory disclosed in the first A-share application.

In December 2022, Mengjin Park appointed CITIC as the sponsor of the second A-share application, but did not submit a second A-share application in order to gain better access to diversified and global investors and gain more international recognition.

Mengjinyuan was established as a limited company in China in September 2000 and transformed into a joint stock limited company in June 2018. It is an original brand manufacturer of gold jewelry in China. According to Frost Sullivan data, in terms of gold processing volume and gold jewelry revenue, Mengjinyuan ranked fourth and fifth among Chinese gold jewelry brands in 2022, respectively. In terms of gold jewelry revenue (excluding gold bars) and the number of offline stores in third-tier cities and below, the company ranks third and fourth among Chinese gold jewelry brands.

Zhang Xiuqin is Wang Zhongshan's spouse, and Wang Guoxin and Wang Na are their children.

Pre-IPO ownership structure chart, picture source: prospectus

In this application for listing, the company intends to raise funds to optimize the production facilities in Weifang, Shandong Province to enhance production capacity, expand and strengthen the franchise network, invest in information technology, establish R & D centers, working capital and other general corporate uses.

one

Gross profit margin deposit fluctuation

Mengjin Garden produces and sells gold jewelry in China, including rings, necklaces, pendants, bracelets, earrings, brooches, bracelets and so on. Its market positioning is "Chinese high-purity Seiko gold decoration expert", and the brand is "Mengjin Garden".

Part of the company's signature product series, picture source: prospectus

From the perspective of the industry, China's gold jewelry processing volume grew at a compound annual rate of-1% from 2017 to 2022. Affected by the economic downturn and rising gold prices, gold jewelry processing volume declined in 2019 compared with the same period last year. Under the influence of the epidemic, the processing volume dropped sharply to 510 tons in 2020, and then rebounded with obvious fluctuations.

Photo Source: prospectus

There is a custom of getting married and buying "three gold" in many parts of our country, and wedding consumption is also an important consumption scene of gold jewelry, but the number of marriages in our country has declined continuously since 2013, and it has fallen below 7 million pairs in 2022, which also affects the consumption of gold jewelry to a certain extent.

In terms of performance, the prospectus shows that in 2020, 2021 and 2022, the operating income of Mengjin Garden is about 10.834 billion yuan, 16.871 billion yuan and 15.724 billion yuan respectively, and the corresponding net profit is 174 million yuan, 224 million yuan and 181 million yuan respectively. From January to June in 2023, the company's revenue and net profit were about 9.316 billion yuan and 106 million yuan respectively.

Consolidated profit and loss and other comprehensive income statement, picture source: prospectus

In 2020, 2021, 2022 and the first half of 2023, Mengjin Park's gross profit margin was 5.9%, 3.2%, 4.8% and 5.7% respectively, with certain fluctuations; the corresponding net profit rates were 1.6%, 1.3%, 1.1% and 1.1%, respectively.

Main financial ratio, picture source: prospectus

Mengjinyuan's products are mainly made of gold. In 2020, 2021, 2022 and the first half of 2023, the company's gold purchases accounted for about 98% of the total raw material purchases. Gold price fluctuations will affect the company's gross profit margin and business.

two

Rely on five major suppliers

The upstream of the gold jewelry industry involves gold mining, gold import, gold recovery, gold trading and gold leasing, while the middle reaches are mainly gold jewelry processing and manufacturing, wholesalers, and so on. Downstream includes self-owned stores, franchise stores, banks, e-commerce platforms and other gold jewelry distribution channels.

The full value chain operation of Mengjin Park combines all the key links of the gold jewelry industry, including raw material procurement, to raw material purification, brand management, research and development, product design, intelligent manufacturing and other businesses. The company also takes high-purity gold jewelry as the core and has established a sales network.

Business model (simplified), photo source: prospectus

Mengjin Garden is more dependent on major suppliers. During the track record period, the company's five major suppliers mainly include the Shanghai Gold Exchange and its member units, as well as commercial banks. In 2020, 2021, 2022 and the first half of 2023, the company's purchases from the five major suppliers accounted for about 92.0%, 96.8%, 98.8% and 97.3% of the total, respectively, while the Shanghai Gold Exchange, the largest supplier, accounted for more than 70% of the total purchases.

The company mainly sells products to customers through the offline sales network composed of franchise stores and self-owned stores. In addition, products are provided to customers through online sales of the e-commerce platform. According to the prospectus, as of June 30, 2023, Mengjin Park covered 2756 franchise stores, 35 proprietary stores, seven direct service centers and 17 provincial agents, as well as the consumer network of online stores on mainstream e-commerce platforms.

According to distribution channels, about 60% and 30% of Mengjin Park's revenue is contributed by franchisees and provincial agents in 2020, 2021, 2022 and the first half of 2023, respectively. E-commerce sales and proprietary stores account for a relatively low proportion of revenue. However, the company's operational control over franchisees and provincial agents is limited, if the company is unable to maintain or further develop cooperation with franchisees and provincial agents, or if franchisees and provincial agents fail to provide satisfactory services, it may affect the company's operating performance.

Breakdown of income by distribution channel, photo source: prospectus

three

Conclusion

As a domestic original brand manufacturer of gold jewelry, Mengjin Park's operating performance and gross profit margin fluctuated in recent years. Affected by the macroeconomic situation and epidemic situation, China's gold jewelry processing volume fluctuates, coupled with the decline in the number of domestic marriages in recent years, the gold jewelry market will also be affected. The company is more dependent on major suppliers, sales are more dependent on franchisees and provincial agents, the future operation is still uncertain.