According to the Zhongjiang Securities report, historical sales of gold jewelry are weakly correlated with gold prices. Gold prices are more likely to affect short-term consumption rhythms. After a rapid increase in gold prices and a subsequent slowdown, sales have shown a compensatory growth trend. The recent surge in gold price occurred during a quiet season for the industry, and it has been oscillating at a high level for over two months. If the gold price continues to be stable, the industry's peak season in the second half of this year is expected to drive demand recovery. In the medium to long term, the industry demand has a certain resilience due to the value preservation attribute of gold and expanding personalization scenarios, such as gift-giving in jewelry products. Top brands can optimize their distribution channels and upgrade their products, while the proportion of high labor cost gold jewelry can increase, improving the profitability of gold products and the earning stability of enterprises and franchisees.

Regarding symbols, there has been a recent decline in the jewelry sector, with the low valuations and high dividend attributes of top companies becoming more prominent. We particularly recommend Lao Feng Xiang (600612.SH), Zhou Dasheng (002867.SZ), and Cai Bai Stock (605599.SH), and suggest paying attention to Chow Tai Fook (01929) and Guangdong CHJ Industry (002345.SZ).

The main opinions of Changjiang Securities are as follows:

With the gold price oscillating at a high level, demand is expected to recover.

Between 2015 and 2023, global gold prices increased substantially, while domestic gold jewelry consumption fluctuated between 650 and 750 tons, and global gold jewelry consumption fluctuated around 2100 tons, showing strong resilience. The underlying reason may lie in the value preservation attribute reflected by the long-term increase in gold prices, which consolidates consumers' psychological expectations of wealth effects, thus offsetting the optional attributes of jewelry products to some extent. Though the rapid increase in gold prices in a short period of time may disrupt consumer spending rhythms on a quarterly and monthly basis, budget-oriented consumers are expected to adapt to new prices more quickly after the surge slows down, leading to a narrower decline in sales volume and driving sales growth to turn positive, followed by the potential rebound of sales volume.

The second half of the year is a relatively busy season, and restocking is worth noting.

Jewelry consumption exhibits obvious seasonality, with January and February concentrated on multiple consumption scenarios such as party gifts, zodiac blessings, and personal rewards, and with greater promotional efforts by merchants. Important festivals such as Qixi, Mid-Autumn Festival, National Day, and Christmas are concentrated in the second half of the year. Overall, jewelry consumption is concentrated from August to the following February. The recent surge in gold prices occurred from late March to early May during a quiet season, during which consumers may have more time to adapt to the gold price, and the consumption recovery in the second half of the year is still worth expecting.

The opening pace is steady, and the budget may not be rigid.

In response to the peak season consumption, the net number of store openings in the second half of the year accounts for 60-70% of the whole year. Moreover, since brand owners and distributors can provide franchisees with payment terms, site selection and decoration services, and sales subsidies, support store expansion and smooth the impact of gold prices, historical rapid increases in gold prices have not significantly delayed the expansion pace.

On the demand side, given the current weak economic outlook, the increasing savings rate may lead to lower consumption willingness. However, historically, Zhou Dasheng's gold jewelry unit price has increased with gold prices, and the proportion of different-weight gold jewelry in the industry has remained relatively stable, without obvious trends of "smaller and lighter" or less weight. This is probably due to the value preservation attribute of gold, which makes consumers more acceptable to increased single-unit purchase costs, and the promotion of product upgrades, which may allow consumers to make some adjustments in their budgets.

Risk warning: household income recovery falls short of expectations, weakening consumer spending willingness; further rapid increase in gold prices in the second half of the year; intensified industry competition may cause some disruptions in the current pattern.