Investment highlights
For the first time, Dia shares covered (301177) were given a neutral rating. The target price was 29.05 yuan, corresponding to 37 times the 2024 P/E. The reasons are as follows:
Wedding diamond industry: Demand is under pressure in the short term, and there is room for growth in long-term industry penetration rate and average price. Demand for natural diamond jewelry has been weak since 2022 due to consumer power, falling prices of natural diamond raw materials, and other substitution effects; we expect long-term penetration rates and average prices to grow. The number of units in the wedding diamond industry will grow compounded over the next 5 years, and the industry may continue the trend of branding and centralization.
The core competitiveness of Dia Co., Ltd. is superior in brand building and values brand investment. Unlike traditional jewelry brands that focus on expanding market share through store opening, Dia uses a unique business model of “online drainage+offline transformation”: first launch high-quality brand promotion resources on social media and short video platforms to shape the brand perception of “only give one person for a lifetime”, reach out to target consumers and drive them to stores, and then achieve sales transformation through high-end store image, high-quality products, and ceremonial services. The fully self-operated channel model, professional brand communication team, rich brand promotion resource delivery, and unique offline experience helped the company gradually accumulate a huge active fan base.
Future growth is driven by the number of people reached by online brand promotion and offline conversion rates. Looking ahead, we believe that a further increase in the number of people reached by the company's online marketing and an increase in offline conversion rates will be key factors driving the company's future growth. 1) According to our estimates, the number of long-term stores of the company is expected to exceed 800; 2) In terms of single stores, the decline in demand for natural diamonds will affect the revenue and profit performance of stores in the short term, but considering the company's relatively scarce brand positioning and high brand volume, and the establishment of strategic partnerships with many real estate projects, we believe that the company has the ability to obtain high-quality points, and the online conversion rate increases as industry demand recovers and the company's continuous launch, and the efficiency of single stores is expected to improve in the future.
What is our biggest difference from the market? The market is concerned about the speed at which jewelry companies open stores, but we believe that when demand in the industry weakens, the climbing period for new stores is prolonged and may show negative operating leverage. We are cautious about companies expanding stores in the short term.
Potential catalysts: Diamond jewelry consumption is picking up, wedding demand is being compensated, and the effects of expanding the category are better than expected.
Profit forecasting and valuation
We expect the company's 23/24 EPS to be 0.27 yuan/0.79 yuan (-85%/+191% year-on-year, respectively) and -34% CAGR. The current share price corresponds to 36 times 2024 P/E. Considering that demand for natural diamonds is currently weak, the company's main business is highly concentrated in the natural diamond wedding scene, which is greatly affected by the decline in industry demand. The effects of future scale expansion and category expansion need to be further observed. The first coverage gave a “neutral” rating. The target price was 29.05 yuan based on 37 times 2024 PE, with 2% room for upward movement.
risks
The boom in the natural diamond jewelry industry has declined, demand for weddings has declined, brand influence has declined, the terminal retail environment falls short of expectations, false negative news affects brand image, and outsourcing production risks.