Core views
In 2023, the company achieved operating income of 56.364 billion yuan, +19.61% year-on-year; realized net profit of 973 million yuan, +27.20% year-on-year; realized net profit of 881 million yuan without return to mother, +26.81% year-on-year. With 2024Q1, the company achieved operating income of 18.251 billion yuan, +13.08% year on year; realized net profit of 363 million yuan, +21.09% year on year; realized net profit of 369 million yuan after deduction, +33.21% year on year. In 2023, the company added a total of 13 direct-run stores, 985 franchised stores, closed 15 direct-run stores, closed 368 franchised stores, and rapidly expanded the number of franchised stores.
occurrences
In 2023, the company achieved operating income of 56.364 billion yuan, +19.61% year-on-year; realized net profit of 973 million yuan, +27.20% year-on-year; realized net profit of 881 million yuan without return to mother, +26.81% year-on-year.
With 2023Q4, the company achieved operating income of 15.051 billion yuan, +31.62% year over year; realized net profit of 233 million yuan, +53.71% year over year; realized net profit of 202 million yuan after deduction, +90.39% year over year.
With 2024Q1, the company achieved operating income of 18.251 billion yuan, +13.08% year on year; realized net profit of 363 million yuan, +21.09% year on year; realized net profit of 369 million yuan after deduction, +33.21% year on year.
Brief review
The company's performance is growing rapidly, leading the industry average. After a marked increase in consumer demand for gold and jewellery in 2023, the industry maintained its boom in 2024. In 24Q1, China's gold consumption was 308.905 tons, an increase of 5.94% over the same period. Among them: 183.922 tons of gold jewelry, down 3% year on year; 106.323 tons of gold bars and coins, up 26.77% year on year; 18.660 tons of industrial and other gold, up 3.09% 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.
Higher gold prices have boosted gross profit margins. International gold prices continue to rise under the influence of complex factors such as increased global economic uncertainty, increased gold reserves by central banks around the world, and geopolitical risks. The price of gold in Shanghai was around 480 yuan during the 2024 Spring Festival. It surpassed 500 yuan/gram in early March, and reached a high of 564 yuan/gram in mid-April. In 24Q1, the company's gross margin was 4.09%, +0.11 pct year-on-year.
Franchise stores are expanding rapidly, and the pace of expansion is still not slow in 2024. In 2023, the company added a total of 13 direct-run stores, 985 franchised stores, closed 15 direct-run stores, closed 368 franchised stores, and rapidly expanded the number of franchised stores. In 2024, the company plans to open 6 direct-run stores and 216 franchise stores.
Promote the cultivation of new diamond businesses and launch new products. In terms of products, in 2023, the company launched 95 products to cultivate diamond products, creating 18K gold diamond product lines such as “Highlight Now” and “In the Name of Love” and “5G Handmade Gold”. In terms of channels, the company opened China Gold Jingdong Diamond Cultivation Flagship Store, actively expanded cooperation with platforms such as Alipay and Youzan, and launched the official China Gold Cultivating Diamond Enterprise account for the Xiaohongshu platform.
High dividends give back to shareholders. The company plans to distribute cash dividends of 4.50 yuan per 10 shares to all shareholders based on the total share capital on the dividend dividend registration date, and is expected to pay 756 million yuan in cash, accounting for 77.66% of the net profit due to mother in 2023.
Investment advice: The company's net profit from 2024 to 2026 is estimated to be 1,291, 15.26, and 1,835 billion yuan, respectively, corresponding to PE of 14, 12, and 10 times, respectively, with an “increase in holdings” rating.
Risk analysis
1. Risk of gold price fluctuations. The shape of the world economy is complex, and there is uncertainty about the pace of interest rate hikes by the Federal Reserve. Large fluctuations in gold prices may cause consumers to stay on the sidelines and temporarily reduce their consumption of gold and jewelry.
2. Internal control management risk. With the expansion of the company's channels, the number of subsidiaries, direct stores and franchise stores under the company will further increase, which will make the company's management more difficult and place higher demands on the company's internal controls such as procurement and sales, inventory management, personnel management, and financial regulations.
3. Industry competition increases risks. Homogenized competition in traditional gold jewelry has led to an increase in industry concentration, but this does not necessarily lead to further optimization of operating efficiency. Due to the fierce competition in the gold jewelry industry, the brand division is not high, and the company is in the stage of achieving rapid growth through channel expansion. After the rapid expansion of channels, operational efficiency may decline to a certain extent. More new stores will need to go through a climbing period, and single store revenue may decline in the short term. At the same time, expanding stores to low-tier cities or non-core business districts in high-tier cities may cause the revenue of individual stores to decline over a long period of time.
4. Franchisee violations of laws and regulations may affect the company's brand image. The Beijing Fuli Plaza store operated by the company's franchise franchisee, Beijing Sanding Gold & Jewelry Co., Ltd., violated the “Specialty Store Franchise Agreement” signed with the company, carried out the so-called “worry-free gold bar reservation” business in violation of regulations, and stopped operating activities without permission on December 27, 2023, making it impossible to pay for products already purchased by consumers. Mr. Yang, the actual controller of Beijing Sanding Gold and Jewelry Co., Ltd., has been taken into criminal custody by the public security authorities and has entered judicial proceedings.