Core views

For the full year of 2023, we achieved operating income of 71,436 billion yuan, +13.37% year over year; net profit to mother of 2,214 billion yuan, +30.23% year over year; net profit after deduction of 2.156 billion yuan, +24.83% year over year. With 2024Q1, the company achieved operating income of 25.63 billion yuan, +4.36% year over year; realized net profit of 802 million yuan, +12% year over year; realized net profit of 835 million yuan after deduction, +13.82% year on year. The company's performance is better than the industry average, and the launch of the third round of “Double Hundred Action” state-owned enterprise reform is expected to further stimulate business vitality. The company has maintained a high dividend ratio to give back to shareholders for many years.

occurrences

For the full year of 2023, the company achieved operating income of 71,436 billion yuan, +13.37% year over year; realized net profit of 2,214 billion yuan, +30.23% year over year; realized net profit without deduction of 2.156 billion yuan, +24.83% year over year.

With 2023Q4, the company achieved operating income of 9.37 billion yuan, -1.08%; realized net profit of 250 million yuan, -27.41% year-on-year; realized net profit of 176 million yuan after deduction, or -49.94% year-on-year.

With 2024Q1, the company achieved operating income of 25.63 billion yuan, +4.36% year over year; realized net profit of 802 million yuan, +12% year over year; realized net profit of 835 million yuan after deduction, +13.82% year on year.

Brief review

Gold sales have remained strong. Due to the recovery in consumption and consumer preference for gold jewelry, gold and jewelry consumption was booming throughout 2023. In 2023, the country's gold jewelry consumption was 706.48 tons, up 7.97% year on year; gold bars and coins were 299.60 tons, up 15.70% year on year; in 24Q1, China's gold jewelry consumption was 183.922 tons, down 3% year on year; gold bars and coins were 106.323 tons, up 26.77% year on year. Considering the impact of the increase in gold prices, China Gold and Jewelry Association had zero year-on-year growth of 4.5% in 24Q1. China's gold revenue increased 13% during the same period, and net profit to mother increased 21% year over year. The rise in gold prices increased the company's gross profit margin. The company's 24Q1 gross margin was 8.37%, +0.35 pct year-on-year.

Store expansion is still expected to continue at a high rate. In 2023, the company opened 385 stores for the whole year and 363 stores in the second half of the year, which is higher than the target of 350 stores set at the beginning of the year.

Among them, 392 franchise stores were completely opened, and 7 self-operated stores were closed. The company expects to add no less than 300 specialty stores and distribution outlets (counters) throughout 2024. At the same time, the company is vigorously improving the market layout of “Treasure Gold” and “Fengxiang Lucky Story” themed stores, and plans to actively expand the development of online platforms, which is expected to become a new growth point.

The third round of the “Double Hundred Action” state-owned enterprise reform was launched. The company accelerated sorting out the projects and timeline of the third round of “Double Hundred Action”, formulated the “Lao Fengxiang Co., Ltd. “Double Hundred Action” Reform Implementation Plan (2023-2025)”, determined specific reform measures, and fully launched the third round of “Double Hundred Action”.

Continue to maintain a high dividend rate. The company plans to distribute a dividend of 19.50 yuan for every 10 shares to all shareholders based on a total share capital of 523,117,764 shares at the end of 2023. The total amount is 1,020 billion yuan. The annual dividend rate is 46.07%. The company has basically maintained a dividend rate of more than 40% since 2012. The parent company's undistributed profit balance after distribution was $2,039 million.

Investment advice: We expect the company's net profit to be 25.07, 27.55, and 3,058 billion yuan from 2024 to 2026, corresponding to PE of 16, 15, and 13, maintaining a “buy” rating.

Risk analysis

1. The risk of fluctuations in gold prices and exchange rates: The company currently accounts for the largest share of sales of pure gold products. Although the price of gold is currently on an upward trend, world financial and trade risks are still prone. There is still great uncertainty about gold and exchange rate trends, which will affect the company's operations and inventory management to a certain extent.

2. Risk that consumption recovery falls short of expectations: Consumer consumption perceptions and habits may change. Although the economy is in the process of recovering, there is also a possibility that marginal consumption trends will decline. Consumption recovery falls short of expectations and will have an impact on the company's performance.

3. The risk that the company's strategic goals do not meet expectations: The industry is changing rapidly, and the degree of completion of the company's strategic goals is implied by specific implementation and various uncertainties such as the external economic environment, competitive environment and market preferences, and there is a risk that it will not meet expectations.