Incident: The company released its 2023 annual report and 2024 quarterly report: in 2023, the company achieved operating income of $53.664 billion, +19.61% year over year; net profit to mother of 973 million yuan, +27.20% year over year; net profit after deducting non-return to mother of 881 million yuan, +26.81% year over year. 2024Q1, the company achieved operating income of 18.251 billion yuan, +13.08% year on year; net profit to mother of 363 million yuan, +21.09% year on year; net profit after deducting non-return to mother of 369 million yuan, +33.21% year on year.
Sales of gold products increased rapidly, and profitability increased slightly: by product, the company's revenue for gold products/K gold jewelry products/brand royalty/management service fees in 2023 was 554.85, 3.56, 1.10, and 84 million yuan, respectively, +20.09%/-26.51%/+40.67%/-10.33%; gross margins were 3.67%, 18.30%, 100%, and gold products/K gold jewelry products were +0.36%/-3.86pct. 2024Q1, the company's gold and jewellery/service fee revenue was 18.030 million yuan and 0.34 billion yuan, respectively, +12.82%/+299.47% compared with the same period last year.
Channel intensive cultivation and product strength improvement: 1) Channel: At the end of 2023, the company had opened a total of 4,257 stores, a net increase of 615 stores (13 and 15 new direct-managed stores were opened/closed, respectively, and 985 and 368 new franchised stores were opened/closed respectively). In 2024, the company plans to add 6 or 216 direct/franchise stores. By sales model, the company's direct sales/distribution revenue in 2023 was 329.35 billion yuan and 23.10 billion yuan respectively, +15.41%/+26.08% year-on-year; gross margins were 2.81% and 5.93%, respectively, +0.35/ -0.10pct. 2) Product: Give full play to the leading ability of the “Product Leadership Group”, adhere to the combination of “introduction” and “going out”, cultivate our own design team, enrich our own IP culture, and build internal core competitiveness.
Investment advice: As a leading central enterprise in China's gold industry, the company is strongly supported by the group level and has the advantage of “design, processing, wholesale, retail and service” throughout the industry chain. The company adheres to the “product” + “channel” two-wheel drive, and focuses on enhancing the brand image, while speeding up the layout of C-end stores, and steadily improving market competitiveness. We anticipate that the company's net profit for 2024-2026 will be 12.04/13.93/1,556 billion yuan, corresponding to the current PE being 16x/13x/12x, respectively, maintaining an “incremental” rating.
Risk warning: the risk of gold price fluctuations, downstream demand falls short of expectations, and market competition intensifies.