Key points of investment:
Net profit attributable to mother increased 27.20%/21.09% in 23/24Q1.
In '23, the company achieved revenue of 56.364 billion yuan/ +19.61%, gross profit margin of 4.13% /+0.23pct, and net profit to mother of 973 million yuan/ +27.20%. Looking at the single quarter split, 23Q4 achieved revenue of 15.051 billion yuan/ +31.62%, gross profit margin of 3.84% /-0.29pct, and net profit to mother of 233 million yuan/ +53.71%. 24Q1 achieved revenue of 18.251 billion yuan/ +13.08%, gross profit margin 4.09% /+0.11pct, and net profit to mother of 363 million yuan/ +21.09%. According to the announcement, the company plans to distribute 4.5 yuan for every ten shares.
In '23, a net of 617 franchise stores were opened, and the store opened smoothly.
In '23, the company strengthened its franchise business expansion. By the end of '23, China Gold had opened 615 net stores, reaching 4257 stores, including 103 self-operated stores (net closure of 2), 4154 franchised stores (617 net stores), and the total number of 24Q1 stores reached 4265, of which 0/8 self-operated stores/franchise stores had net opening, to 103/4162. Looking ahead to 24Q2-Q4, according to the company's announcement, there are plans to open 6 direct-run stores and 216 franchise stores. The new stores are mainly concentrated in East China and Central China.
Gold products and brand franchise fees performed well.
By product, gold products/K gold jewelry achieved revenue of 554.85/356 million yuan, respectively, 20.09%/-26.51%, gross margin of 3.67%/18.30%, year-on-year, 0.36/ -3.86pct, and brand usage/management service fees reached 1.10/84 billion yuan, or 40.67%/-10.33% year-on-year. The main theme of gold products is “cultural inheritance+fashion interpretation”, leveraging the renewal and upgrading of products such as Chengfu Gold, K Payjin, Exquisite Gold, and “National Treasure Gold”. Looking at the sales model, the direct sales/distribution model achieved revenue of 329.35/23.10 billion yuan, respectively, 15.41%/26.08%, and achieved gross profit margin of 2.81%/5.93%, +0.35/ -0.10pct. The direct sales channel strengthened the construction of the banking and mail business, completed the “Year of the Kwai Mao” stamp gold and gold BRICS projects, and successfully won the bid for the “Year of the First Year” stamp gold project. The e-commerce channel's own stores and online authorized stores went hand in hand to strengthen live streaming business cultivation.
The cost side is stable, and the net interest rate has increased.
The 23-year sales/management/finance/R&D expense ratio was 0.88%/0.33%/0.04%/0.05%, year-on-year, -0.07/0.02/-0.01pct, 24Q1 sales/management/ finance/R&D expenses ratio was 0.70%/0.20%/0.07%/0.02%, 0.07/-0.03/-0.03pct year on year, overall cost control was good, 23/24Q1 achieved a net profit margin of 1.73%/2.00% year on year +0.10/+ 0.13pct
Profit forecasting and investment advice
Franchise sales in '23 exceeded expectations. We adjusted our profit forecast. The company's revenue for 2024-2026 is $636.75/706.91/784.69 billion yuan (the previous value was 622.22/69.175 billion yuan in 24-25). Due to rising gold prices increasing demand for investment products or affecting gross profit margins, we adjusted our profit forecast. We estimated net profit to the mother of 12.10/15.40/17.67 billion yuan for 24-26 (the previous 24-25 year was $1,246/1,599 billion yuan). The current price corresponds to the 24/25 PE16/12x, maintaining a “buy” rating.
Risk warning
The risk of gold price fluctuations, the risk of increased competition, the risk of channel expansion falling short of expectations, the risk of large stock bans being lifted, and the risk that cultivating the diamond sector falls short of expectations