Matters:
In 2023, the company achieved revenue of 2.118 billion yuan, or -40.78% year-on-year; net profit to mother was 0.69 million yuan, -90.54% year-on-year, after deducting non-net profit loss of 120 million yuan, which changed from profit to loss year-on-year. The 2023Q4 alone achieved revenue of 438 million yuan, or -31.37% year-on-year, net profit attributable to mother of 0.05 billion yuan, a loss reduction of 88.02%, after deducting non-net profit of -53 million yuan. In '23, the company plans to distribute 5 yuan in cash for every 10 shares, for a total of 200 million yuan in cash.
In Q1 2024, revenue of 426 million yuan was achieved, and net profit attributable to mother was 0.29 million yuan, or -70.81% year-on-year, after deducting non-net profit of -06 million yuan, which changed from profit to loss year-on-year.
Commentary:
The diamond industry is subject to cyclical adjustments, and the company's performance has declined. Affected by cyclical adjustments in the diamond industry, macroeconomic instability, and the impact of cultivating drills, the company's revenue declined year-on-year in '23. By product, the company's proposal diamond ring\ wedding ring\ other jewelry was -41.5%/-37.0%/-26.0%, respectively. In '23, the company achieved a gross profit margin of 68.83%, a year-on-year rate of -0.96pct, which remained relatively stable. On the cost side, the company's sales/management/finance/R&D expense ratios in 23 were 56.4%/7.0%/1.2%/1.0%, respectively, corresponding to +17.7/2.5/0.6/0.5pct year-on-year. The increase in sales expenses ratio was mainly due to a decline in revenue. The profit side was affected by an increase in asset impairment loss accruals and rental deposit losses due to active adjustment of channel store strategies, compounded by a decline in revenue. Net profit returned to mother was -90.5% year-on-year in '23.
Actively optimize store layout and gather brand potential to help reduce costs and increase efficiency. The company actively adjusted its channel strategy in line with market changes. A total of 221 stores were optimized during the Q1 period from '23 to '24, while adding stores in high-potential business districts and more core locations. As of 24Q1, 491 stores remained active, covering nearly 200 cities. Store optimization and adjustment helped the company reduce fees and increase efficiency. 23 After the company adjusted and optimized channels in the second half of the year, the decline in single-store revenue, gross profit, and floor efficiency decreased compared to the first half of the year. At the same time, the close proximity of outstanding employees to leading shopping malls helped operate customer traffic to the store and natural traffic to the mall, gradually releasing the growth pressure of the same store.
Focus on users to improve product line refinement, expand diamond ring scenarios, wedding gold. In 24, the company plans to divide the product and e-commerce team into four major scenarios of diamond rings, rings, wedding gold, and accessories to improve the fineness of the product line: the diamond ring side will launch high-end jewelry series and personal haute couture series, while complementing scenarios such as rings and accessories for user portraits; at the same time, using high-end wedding gold as the test direction, continuously optimize the R&D process, and continue to develop new high-end wedding gold products that reflect DR's original design.
Investment advice: The company is a leading brand in the global diamond ring market. Over the years of development, it has accumulated differentiated brand awareness and high brand potential. Under the cyclical adjustment of the diamond industry, the company actively optimizes the channel side layout to improve operational efficiency; adjusts the organizational structure, focuses on refined product design for users, and expands diamond ring scenarios and gold categories to open up room for growth. As the economy recovers and the brand strategy strengthens, the company's performance is expected to pick up. We expect the company's net profit to be 1.94/2.92/367 million yuan from 24 to 26, corresponding to a year-on-year increase of 181.9%/49.9%/25.9%. Considering the company's performance improvement expectations and category increases after channel adjustments, the company will be given 38X PE for 25 years, with a target price of 27.7 yuan, maintaining the “recommended” rating.
Risk warning: Demand in the diamond ring industry continues to be sluggish, macroeconomic fluctuations, and the performance of new brand products falls short of expectations