The company announced its 2023 annual report and 2024 quarterly report, and the results were basically in line with expectations. In 2023, the company achieved revenue of 5.09 billion yuan, +33.6% year over year; net profit to mother was 333 million yuan, +67.4% year over year; net profit after deducting non-return to mother was 3.06 yuan, +71.9% year over year. 2023Q4's revenue in a single quarter was 1.01 billion yuan, +35.1% year on year; net profit to mother was 20 million yuan, turning a loss into profit year over year. Net profit not attributable to mother was less than 0.2 billion yuan, mainly due to FION women's bags accounting for a loss of goodwill of 39 million yuan.

2024Q1's quarterly revenue was 1,796 million yuan, +17.9% year on year; net profit to mother was 131 million yuan, +5.5% year on year, net profit of non-return to mother was 129 million yuan, +5.4% year on year.

On the revenue side, actively expand franchise stores, promote channel decline, strengthen the operating capacity and brand building of gold products, and achieve high growth in gold products in line with the trend of the national trend. 1) Continue to promote channel changes and increase franchise store expansion efforts. The expansion of the company's terminal franchise stores accelerated in 2023. The number of “CHJ Chaohongji” jewelry franchise stores increased by 293 compared to the beginning of the year, and the total number of stores reached 1,125. Store expansion led to a high increase in franchise agent revenue. In 2023, the company's own operations, franchise agents and wholesale channels each achieved revenue of 32.58/24.81/135 billion yuan, an increase of 14.5%/67.6%/57.6% over the previous year. In terms of channel expansion, the company continues to penetrate empty areas, accelerate the decline of mature markets, and build regional benchmark stores. 2) Strengthen the operation of gold products, and single-price gold products are growing rapidly. The company has outstanding R&D and design capabilities, actively grasps the dividends of process upgrades, and strengthens the operational capabilities of gold products. One-price gold products such as beads are loved by young customers, driving high revenue growth for gold products. In 2023, the company's fashion jewelry products, traditional gold products and leather goods achieved revenue of 2,989/22.65/371 billion yuan respectively, an increase of 20.4%/56.8%/14.4% year-on-year. 3) Follow the trend of the national trend and increase brand building. The company follows the trend of the national trend and uses “Fashion Oriental, Intangible Heritage” as the main communication line to create fashion gold products such as “Filigree Fengyu Bridge” and “Flower Silk Cloud”, which mainly focus on intangible heritage techniques; the FION brand created the Qiaojin Kaiwo series and launched products such as “Tobacco Pink Yaochi” and “Cangyue Yaochi” to promote brand upgrading. 4) Expand the online layout, continue to build a user ecosystem, and increase the repurchase rate and conversion rate through digital operations.

In 2023, the third-party platform of the company's jewelry business had an online sales transaction volume of 1,279 billion yuan, an increase of 14.8% over the previous year. Through the layout of new channels such as Douyin, the company opened up the market with popular models with a strong sense of design, and converted brand fans through private domain operations and user data management. Member repurchases contributed more than 50% of revenue in 2023.

Profit side, product and channel structural adjustments affect gross profit margins, and cost ratios are continuously optimized. In 2023, the company achieved a gross profit margin of 26.1%, a year-on-year decline of 4.1pct, a 24Q1 gross profit margin of 24.9%, and a year-on-year decline of 3.1 pcts. Mainly due to product and channel restructuring, the share of gold products with low gross margin and franchise channel revenue increased. In 2023, the company's sales, management, R&D and financial expenses rates were 14.0%/2.1%/1.1%/0.5%, respectively, -3.5/+0.1/-0.3/-0.1pct, and the cost rate for the period was 17.8%, and -3.9 pct year-on-year. 24Q1 The company's sales, management, R&D and financial expenses rates were 11.4%/1.8%/0.9%/0.5%, respectively, -2.2/+0.5/-0.1/+0.0pct. The cost ratio for the period was 14.6%, and -1.9pct year-on-year. The year-on-year decrease in the sales expense ratio is mainly due to an increase in revenue scale and dilution of expenses; internal digital construction and other methods have obvious cost control effects; franchise business expansion and asset-light operations reduce cost investment. In 2023, the company achieved a net interest rate of 5.7%, an increase of 1.1 pct over the previous year; in 24Q1, it achieved a net return rate of 7.3%, a year-on-year decrease of 0.9 pct.

The diamond cultivation layout is progressing steadily, creating new highlights for development. 22Q3 signed an agreement with Power Diamond and others to establish a joint venture to create and operate the diamond jewelry brand Cevol. 23H1 launched a series of new products such as “Born to Shine,” “C,” and “Shine.” The Mini Program Mall was officially launched in May, and an offline experience store opened in September. Cooperate with Power Diamond to further expand the diamond supply chain, reduce intermediate processing and wholesale links, and further expand upstream and downstream profits. At the same time, based on existing design and R&D advantages, personalized diamond products are customized according to consumer needs to form a differentiated competitive advantage and achieve rapid growth in line with industry trends, which is expected to bring profit growth points to the company.

Positioning young trends and establishing differentiated brand positioning; using design ability as the core advantage, launching Guochao specialty products in line with the high gold boom cycle to continuously increase market share; strengthen multiple channels, continue to expand franchise channels to accelerate penetration into low-tier cities; expand online layout, continue to build a user ecosystem and consolidate the core customer base; cultivate new diamond products to be launched one after another, which is expected to contribute new growth points. Considering that it will take time for terminal demand to recover, we lowered our 2024-2025 net profit forecast to 413/485 million yuan (original profit forecast was 496/606 million yuan), added 2026 to 574 million yuan, and 2024-2026 net profit to mother was +23.8%/+17.6%/+18.3% year over year, corresponding PE was 13X/11X/9X. The valuation is still cost-effective and maintains the purchase rating.

Risk warning: Gold prices fluctuate, and the expansion of franchisees in the low-tier market falls short of expectations.