Description of the event

The company released its 2024 semi-annual report. With 2024H1, the company achieved revenue of 3.431 billion yuan, a year-on-year increase of 14.15%, and realized net profit to mother of 0.229 billion yuan, an increase of 10.04% over the previous year. The company plans to distribute a cash dividend of 1 yuan (tax included) for every 10 shares to all shareholders, with a dividend ratio of 38.72%.

Incident reviews

In the first half of 2024, the company achieved steady growth in both revenue and performance. With 2024H1, the company achieved revenue of 3.431 billion yuan, a year-on-year increase of 14.15%. Among them, 24Q1-24Q2 achieved revenue of 1.796 and 1.635 billion yuan, respectively, with year-on-year increases of 17.87% and 10.33%. With 2024H1, the company achieved net profit of 0.229 billion yuan, a year-on-year increase of 10.04%. Among them, 24Q1-24Q2 achieved net profit to mother of 0.131 and 0.099 billion yuan respectively, up 5.47% and 16.76% year-on-year. In the first half of 2024, the company achieved steady growth in both revenue and performance, mainly benefiting from the steady performance of the jewelry business, while the women's bag business was under relative pressure.

Single-store sales through self-operated offline channels are expected to increase year-on-year, and the opening of franchise stores is in line with expectations. By the end of 2024H1, the total number of stores in the company's jewelry business was 1,451, a net increase of 52 over the beginning of the period. By channel, the self-operated channel, 2024H1, achieved revenue of 1.725 billion yuan, a year-on-year decrease of 3.98%. The number of jewelry stores at the end of the period was 257, a net decrease of 17 from the beginning of the year. Among them, online channels achieved revenue of 0.6 billion yuan, a year-on-year decrease of 7.88%; online channel jewelry product revenue was 0.536 billion yuan, a year-on-year decrease of 4.12%, accounting for 15.61% of jewelry business revenue. The wholesale channel, 2024H1, achieved revenue of 51.44 million yuan, a year-on-year increase of 9.26%. The company's wholesale channel is mainly a gift customization business for corporate customers.

Joining the agency channel, 2024H1, achieved revenue of 1.647 billion yuan, a year-on-year increase of 43.66%. The number of jewelry business stores at the end of the period was 1,194, a net increase of 69 compared to the beginning of the year. 2024H1, the gross margins of self-employed, wholesale and franchise agents were 31.09%, 9.38%, and 17.19% respectively, up -0.71, 0.18, and -2.72pct year-on-year.

Revenue from traditional gold products increased rapidly, and sales of the women's bag business were under pressure in the first half of the year. By product, fashion jewelry, 2024H1 achieved revenue of 1.654 billion yuan, a year-on-year increase of 5.97%, gross profit margin of 28.52%, and a year-on-year decline of 3.44pct.

Traditional gold jewelry, 2024H1, achieved revenue of 1.477 billion yuan, a year-on-year increase of 31.37%, gross profit margin of 9.78%, and a year-on-year increase of 0.77pct. Leather goods product, 2024H1, achieved revenue of 0.148 billion yuan, a year-on-year decrease of 26.07%, gross profit margin of 62.26%, and a year-on-year decline of 2.13 pcts. The brand licensing and franchise service business, 2024H1, achieved revenue of 0.123 billion yuan, an increase of 41.00% over the previous year. 2024H1, revenue from fashion jewelry, traditional gold jewelry, leather goods, brand licensing and franchise services accounted for 48.21%, 43.04%, 4.33%, and 3.60% of the company's revenue.

Due to the increase in the share of gold products, gross margin declined, cost control was strengthened, and the net interest rate level was basically stable. In terms of profitability, in 2024H1, the company's gross margin fell 2.7 pct to 24.1% year over year, mainly due to an increase in sales share of traditional gold products with relatively low gross margin, and 24Q2 gross margin fell 2.4 pct to 23.3% year over year. In terms of cost ratio, the total cost rate for 2024H1 decreased by 2.7 pct to 14.6% during the period, of which the sales/management/ R&D/finance ratio was 11.4%/1.9%/0.9%/0.5%, -2.7/+0.2/-0.1 pct compared to -2.7/+0.3/-0.1 pct. Under the combined influence of 2024H1, the company's net interest rate to mother was 6.7%, down 0.2 pct year on year, and 24Q2 net interest rate to mother increased 0.3 pct to 6.0% year on year. In terms of inventory, as of the end of 2024H1, the company's inventory was 2.788 billion yuan, up 6.34% year on year. The number of inventory turnover days was 189 days, a decrease of 27 days year on year. In terms of cash flow from operating activities, 2024H1's net operating cash flow was 0.339 billion yuan, a year-on-year decrease of 8.4%.

Investment advice

In the first half of 2024, the offline channels of the company's jewelry business continued the “self-operated to franchise” strategy, and the total number of offline stores increased by 52. Although gross sales margin was accompanied by changes in product structure and declined year on year, benefiting from effective cost control, the company's net interest rate level remained stable in the first half of 2024, and the performance side achieved steady double-digit growth. Considering the slowdown in online sales in the jewelry business and the pressure on sales in the women's bag business, we slightly adjusted the company's profit forecast. The company's 2024-2026 EPS is 0.45, 0.52, 0.60 yuan, and the closing price on August 28 is 4.48 yuan. Corresponding to the company's 2024-2026 PE is 10.0, 8.6, and 7.5 times, maintaining a “holder-A” rating.

Risk warning

Gold prices fluctuate greatly; e-commerce channel expenses increased; franchise channel expansion fell short of expectations; risk of impairment of goodwill.