Investment logic

A product brand-driven company with high gross profit and high net profit characteristics. The profit model is closer to international high-end jewelry companies, and ROE is mainly driven by net interest rates. Focus on ancient gold, high-end positioning+differentiated products+brand potential release, 23-year revenue/net profit ratio +146%/+340%, same store ratio +115.4%, gross profit margin 40% +, net margin +5.8PCT to 13.1% year over year, and ROE increased to 27.5%. The company predicts 1H24 net profit of 0.55-0.6 billion yuan, a year-on-year increase of 180%-205%. Supported by global economic uncertainty+safe-haven demand+the Fed's interest rate cut expectations, the H1 gold price has increased by a cumulative total of 16% +.

Take advantage of the ancient French gold trend to create differentiation with branded products. 1) Ancient French gold continued to prosper with its auspicious cultural significance and aesthetic design. According to Sullivan, China's market size was 157.3 billion yuan in '23, and CAGR 64.6% in 18-23, and is expected to be 21.8% (significantly higher than regular/hard gold) in 23-28; 2) products such as brand-marked diamond and gold tyre burnt blue continued to hit the market, driving high growth in the same store.

High-end channels match brand tone, and single stores have space to improve efficiency & expand stores. 1) Mainly located in high-end shopping malls in first-tier/first-tier cities, with 30 stores at the end of '23, with plans to open 15 new ones in 24-26 (including 5 in Hong Kong, Macao and overseas); 2) Beautiful single stores:

The average annual revenue of stores in '23 was nearly 100 million yuan, higher than that of peers (Chow Tai Fu/Zhou Shengsheng/Lao Fengxiang's average annual revenue was 15-22 million yuan), lower than Tiffany's (the average annual revenue of stores in China was about 0.16 billion yuan in 2019); 3) Expanding store space, referring to international luxury brands Bulgari/Cartier/Tiffany opened 85/64/56 stores in mainland China and Hong Kong and Macau.

Brand awareness has increased rapidly, and long-term potential can still be expected. The high-end customer base dominates, and the rapid expansion of membership drives growth. According to the prospectus, customer orders in '23 accounted for 30% of revenue, and 0.093 million loyal members (+131% over the same period). The company's products have both value preservation and high-end consumer attributes, and we hope to continue to meet the needs of high-end customers for pleasure, gifts, and collection.

The company landed on the Hong Kong Stock Exchange on 6.28. The issue price was HK$40.5 per share, and the net capital raised was approximately HK$0.827 billion. The main uses were to expand sales networks, strengthen marketing, enhance automation and informatization, and strengthen R&D capabilities.

Profit forecasts, valuations, and ratings

The company's net profit for 24-26 is expected to be 0.964/1.254/1.553 billion yuan, +132%/+30%/+24% over the same period, corresponding to 13/10/8 times PE. Considering high-end attributes and better growth, the company is given 15 times PE in 24 years, with a target price of HK$93.44 per share, covering the first time to give it a “buy” rating.

Risk warning

Gold prices fluctuate greatly; store opening/same store sales fall short of expectations; industry competition intensifies