Laopu Gold is the leading brand of high-end ancient French gold. The product positioning and differentiation are obvious. In 2023, it achieved high performance growth, revenue +146%, and net profit +340%. In the context of the ancient gold market and high-end jewelry market space, the company has opportunities to grow. The company's same-store sales growth rate is relatively fast, and there is plenty of room for medium- to long-term store expansion. At the same time, high-end positioning and full direct management channels bring high profitability. For the first time, coverage gave it a “Highly Recommended” rating.

Old-fashioned gold: A high-end brand of handmade gold in ancient France. The company's performance grew rapidly in 2023, and its profitability was strong. Old-fashioned gold is deeply involved in high-end ancient gold. Its products cover pure gold & pure gold inlaid jewelry, ornaments and various types of collectible gold. The channel is fully self-operated stores in high-end domestic commercial centers, mainly aimed at high-end consumers. The company's revenue and profit increased significantly in 2023, achieving revenue of 3.18 billion yuan (+146%) for the whole year. Among them, pure gold inlay grew faster than pure gold products, accounting for more than half of the revenue. The company's profitability is strong, and the brand premium & direct management channels brought high profit margins. The gross profit margin was 41.9% in 2023. The cost ratio declined due to scale effects, and the net interest rate increased to 13.1%; net profit for the whole year was 0.416 billion yuan (+340%).

Industry situation: Ancient gold & high-end jewelry market space is large.

(1) In the current context of rising gold prices and changes in consumer trends, gold, which has both value preservation and fashion consumption attributes, is still the most prosperous category in the jewelry industry. Among them, ancient gold is growing the fastest. In 2018-2023, the CAGR of China's ancient gold market reached 64.6%, far exceeding 3.6% of ordinary gold and 15.5% of hard gold. It is expected that 2023-2028 will still grow at a compound annual growth rate of 21.8% to 421.4 billion, with plenty of room for growth.

(2) China's high-end jewelry market space is large, and domestic brands have opportunities for growth. In 2023-2028, the CAGR of China's jewelry/high-end jewelry market is expected to be 4.3%/14.8% respectively, and the high-end jewelry market space is larger. In terms of the industry pattern, the high-end jewelry market is significantly more concentrated and is basically controlled by foreign brands.

The old gold store “takes the wind of gold” to do high-end jewelry business. It has differentiated product design, culturally settled high-end brand image, excellent sales channels and service quality. As a representative of high-end domestic brands, there are opportunities to break through.

Disassembly of the company's core competitiveness:

(1) Product: Professional R&D design & ancient craftsmanship to achieve product differentiation. The founder leads the R&D team (12 professional jewelry designers) and oversees the creation process of the main products. The product elements explore traditional elements with good meaning, and adhere to ancient handmade methods in terms of craftsmanship, which naturally gives the brand a rich sense of history, emphasizes the scarcity and complexity of the process, and empowers the brand's high-end image. As a result, the company's products are clearly differentiated and maintain a fast pace of update and iteration. More than 200 new products were iterated and newly launched every year in 2021-2023, and new products always accounted for more than 10% of revenue.

(2) Channel: High-end shopping malls, fully directly-managed stores, with high revenue growth and large medium- to long-term store opening space. Old-fashioned stores adopt a fully self-operated model. The location selection is concentrated in high-end shopping malls in the core business districts of Tier 1 and 2 cities to match the target customer base, and the revenue scale of the single store is large and the same store is growing rapidly. The annual revenue of SKP stores in Beijing was 0.336 billion in 2023. Nanjing Deji, Shenyang Vientiane City, and Shanghai Yuyuan Yixiu Tower all had annual revenue exceeding 0.2 billion. In the context of rising gold prices, obvious product differences, continued consolidation of brand power, and expansion of the core customer base, the same store's revenue is expected to maintain rapid growth. As of June 2024, the brand has a total of 33 stores, and plans to open 15 new stores in the next 3 years. There is plenty of room for medium- to long-term growth in targeting international brand channels (the total number of Bulgari, Cartier, and Tiffany stores in mainland China, Hong Kong, Macao and Taiwan is 109, 70, and 63, respectively).

(3) Brand building: high-end positioning, focusing on service and core customer base operation. With product and channel support, the high-end brand position of old gold has gradually been consolidated, as reflected in the high customer unit price of terminals. In 2023, the customer unit price product revenue of 1 to 50,000 to 5 million to 0.25 million customers accounted for 65%/19%, respectively. In addition, the company built a classic and elegant Chinese literature themed consumer scenario, focusing on service and member customer base operations. The number of members grew rapidly by 60% to 0.2 million in 2023; at the same time, the revenue contribution of high-consumer members increased markedly. The share of member revenue with purchases of 1 million or more increased from 10.1% in 2022 to 15.9% in 2023, and the recognition of the brand by the core high-net-worth customer base continued to increase.

Profit forecasting and investment advice. Oldstore Gold is a leading brand of high-end ancient French gold. The product positioning and differentiation are obvious. Currently, same-store sales are growing rapidly, there is plenty of room for medium- to long-term store expansion, and high-end positioning & full direct management channels bring high profitability. The company's net profit for 2024-2026 is expected to be 0.709 billion yuan, 0.863 billion yuan, and 1.005 billion yuan, respectively, +70%, +22%, and +16% year over year. The stock price on June 28 corresponds to 24PE14.9X and 25PE12.2X, which was covered for the first time to give it a “highly recommended” rating.

Risk warning: the risk of large fluctuations in stock prices due to the listing of new stocks; macroeconomic environment fluctuations, risk of falling gold prices; risk of changes in the competitive pattern due to imitation of competitive products; risk of declining consumption power, downgrading consumption structure, and falling short of expectations in terminal sales; risk of offline channel expansion falling short of expectations.