Company Overview: Leading gold and jewelry company in North China, the store is expanding steadily. (1) There is a deep accumulation of brands in North China.
The company, formerly known as Beijing Caishikou Department Store, was initially engaged in department store management, and became a gold and jewelry company in 2010. The company was awarded “Beijing Gold First” in 1997, and became one of the first “Chinese Time-honored Brands” named by the Ministry of Commerce in 2006. The store has already settled in the SKP shopping mall in Beijing. (2) Performance: 1-3Q23's revenue/net profit to mother was 123.7/590 million yuan each, up 45%/66% year on year; the 2019-22 revenue/net profit CAGR was 9.4%/4.6%, respectively. (3) Stores: As of the end of June 2023, the company had 74 stores, of which there were 52/15/7 stores in Beijing (including head office) /other regions of North China (excluding Beijing) /regions outside of North China.
Business structure: Gold jewelry contributes mainly to gross profit, and e-commerce channels maintain high growth. (1) By category: ① Revenue side: In 2019-22, the revenue CAGR for gold jewelry/precious metal investment products/precious metal cultural products was 2.0%/27.7%/1.5%, respectively, accounting for 36.4%/51.9%/8.5% of revenue. ② Gross profit side: The gross margin of gold jewelry/precious metal investment products/precious metal cultural products in 2022 was 18.3%/2.8%/12.7% respectively, accounting for 59.3%/13.0%/9.6% of the company's total gross profit, respectively. (2) Channel division: Direct store/e-commerce and bank channel revenue CAGR in 2019-22 was 5.9%/47.7%/59.3%, respectively, and the revenue share in 2022 was 84.94%/13.39%/1.59%, respectively, compared with -8.66/+7.95/+1.08pct each in 2019. 1H23 e-commerce subsidiary sales increased 109.43% year over year.
Equity structure: Backed by the Xicheng District State-owned Assets Administration Commission, management & employees are fully motivated. (1) The shareholding structure is relatively stable: the actual controller of the company is the Beijing Xicheng District State-owned Assets Administration Commission (holding 24.57% indirect shares through Beijing Jinzheng Asset), and Mingpai Industrial/Hengan Tianrun/Yunnan Development each hold 16.20%/13.28%/8.69%. (2) Equity incentives:
Employee shareholding was implemented at the time of establishment of the company. In December 2019, the employee shareholding meeting (accounting for 13.25%, including 752 employees) restored indirect shareholding to direct shareholding by all natural persons; as of 3Q2023, the company's chairman, Mr. Zhao Zhiliang/General Manager, Ms. Wang Chunli each held 3.21%/2.06% of the shares, with sufficient incentives for management and employees.
Core competitiveness: products are cost-effective, and regional brands go nationwide. (1) Adhere to “standard price, sell real goods, sell good goods”, and the products are extremely cost-effective. According to the company's investor relations activity records, among gold jewelry, most of the company's gold products currently cost zero labor costs per gram, and a small number of products are processed on a per-gram basis. We believe that the company's Beijing head office is its own property, which brings the company lower direct operating costs, which translates into a strong price advantage. (2) Focus on the integration of Beijing-Tianjin-Hebei and radiate major key cities. ① E-commerce: The company established an e-commerce subsidiary in 2014. E-commerce revenue increased from 220 million in 2017 to 1.47 billion yuan in 2022, accounting for an increase of 2.8% to 13.4%, and 1H23 e-commerce subsidiary sales increased 109.43% year-on-year.
The company has now entered 8 platforms to set up 14 stores and set up its own online shopping mall. ② Offline direct-run stores:
The company's store expansion plan focuses on the integration of Beijing-Tianjin-Hebei Province, covering major key cities. In addition to Beijing-Tianjin-Hebei, the company opened 5/1 new stores each in Xi'an/Jiangsu in 2022. We believe that the company is expected to enhance its brand potential through online live streaming, offline store opening, etc., and gradually expand from a regional brand to a national scale. (3) New store climbing contributed greatly to performance flexibility. In 2022, the company's average sales per square meter of business area in Beijing (head office) /Beijing (excluding head office) /Tianjin were 71.40/30.64/238,200 yuan, which is clearly superior to markets/new stores in the development period such as Shaanxi/Inner Mongolia/Jiangsu (4.05/75/ 117,900 yuan each). We believe that as the company's brand potential rises and new stores gradually climb, performance is expected to increase.
Profit forecasting and valuation. Our profit forecast for the company includes the following assumptions:
(1) Revenue side: The company has a deep brand accumulation in North China, and is still in a stage of rapid online growth (1H23 e-commerce subsidiary sales increased 109.43% year on year). We believe that as the company's brand potential rises and new stores gradually climb, the company's market share is expected to continue to increase. In 2023-2025, the company's revenue was 161.96/195.69/23.158 billion yuan, respectively, up 47.4%/20.8%/18.3% year-on-year. By category, we expect that ① precious metals investment products: 2023-2025 revenue will increase 50%/25%/20% year on year; ② gold jewelry: 2023-2025 revenue will increase 53%/18% year on year; ③ precious metal cultural products: 2023-2025 revenue will increase 25%/12%/12% year on year; ④ diamond jewellery:
2023-2025 revenue each increased 6%/2% year on year; ⑤ Joint sales commission: 2023-2025 revenue increased -8%/-10%/-10% year over year, respectively.
(2) Gross profit margin: The company has a direct sales model, and according to the company's pricing policy (the terminal retail price is set according to the target gross margin principle, and the sales price is adjusted according to the principle of “raise prudently and keep up closely”), and considering that the average annual average price of gold spot prices on the Shanghai Gold Exchange in 2023 increased 15% year-on-year compared to 2022, we believe that the rise in gold prices will have a certain impact on the company's gold products (precious metals investment products, gold jewelry, precious metal cultural products) in 2023; therefore, gross margin returned to normal levels in 2024-25 (according to the target gross margin principle) We expect the gross margin of the company in 2023-2025 to be 11.1%/10.4%/10.1%, of which ① precious metals investment products: 2023-2025 gross margin will be 3.0%/2.9%/2.8%, respectively; ② gold jewelry: 2023-2025 gross margin of 19.2%/18.9%/18.9%, respectively; ③ precious metals cultural products: 2023-2025 gross margin of 13.0%/12.5%/12.5%, respectively; ④ Diancui Jewelry:
The gross margin remained at 40% in 2023-2025.
(3) Expense side: The company is a direct management model, and expenses are mainly used for employee remuneration, etc. We expect the 2023-2025 sales expenses ratio to be 2.7%/2.6%/2.6%, each with a management expense ratio of 0.7%/0.6%/0.6%, and the financial expenses ratio 0.2%/0.2%/0.2%, respectively.
In summary, we expect the company's revenue in 2023-2025 to be 161.96/195.69/23.158 billion yuan, respectively, up 47.4%/20.8%/18.3% year on year; net profit to mother of 7.0 billion yuan/8.0 billion yuan, respectively, up 52.9%/13.7%/13.7% year on year.
The 2024 14-18x PE was given, corresponding to a reasonable market value range of 112-14.4 billion yuan, and a reasonable value range of 14.39-18.51 yuan. For the first time, coverage was given a “superior to the market” rating.
Risk warning: risk of gold price fluctuations, increased risk of industry competition, risk of market downturn.