Incident: The company achieved operating income of 500 million yuan in 2023Q3, -47.77% YoY, net profit to mother of 221 million yuan, -89.31% YoY, net profit after deducting -0.18 billion yuan, or -112.68% YoY.
The structural differentiation of the industry puts pressure on overall performance. 2023Q3 Consumer demand for diamond inlay jewelry is insufficient, retail diamond jewelry is under pressure, and engagement rings are still the main contributor to revenue. Affected by macroeconomics, customers continued to be cautious in spending, and the company's fully self-operated sales model faced great pressure and challenges. In 23Q3, online owner/offline direct operation/offline joint venture revenue was -45.13%/-48.75%/-40.53%, respectively. The company actively adjusted its channel strategy, driven the D2C model layout with brand power, and adjusted inefficient stores in line with urban customer needs. The number of stores decreased by 82 in the third quarter.
Higher expense ratios dragged down profitability, and net profit improved month-on-month. 23Q3's gross profit margin was 68.16%, year-on-year - 2.81 pcts; in terms of expenses, 23Q3's largest expenditure item was sales expenses, and the sales/management/R&D expenses ratio was 54.80%/6.99%/1.12%, compared to +11.89pcts/+2.16pcts/+0.85pcts, respectively. This year, the company increased brand promotion and carried out offline cooperation and online marketing activities. The decline in revenue led to a significant increase in the rate. Taken together, the 23Q3 company's net interest rate was 16.11pcts year-on-year to 4.14%, and the decline in profitability was quite obvious.
Retail operations+product development help brands accumulate potential. The company focuses on the Gaosheneng business district, combining the matching of customer base and customer quality to further enhance the single-point radiation influence of the store; continuously improve the soft power of design, introduce new processes and improve product production lines in cooperation with French and Italian workshops; with the successful launch of the new DR HEART series and LOVE MARK series, the company gradually expanded from a single category of diamond rings to a differentiated product layout based on “expression of love”; the company will continue to optimize and iterate the store image. The company will drive active private communities and offline cross-industry cooperation to promote retail space upgrades through online marketing activities. Develop long-term core competitiveness around “brand+channel+product”.
Investment advice: The company's EPS is expected to be 0.26/0.73/1.23 yuan from 2023 to 2025, corresponding to the latest PE of 120.1/43.4/25.8 times, respectively, to maintain the “gain” rating.
Risk warning: Competition in the industry intensifies; diamond demand recovery falls short of expectations; brand expansion falls short of expectations.