It is the leading high-end ancient French gold brand in China, and ranks first among gold and jewelry brands in the top ten shopping malls in China in terms of store coverage. Laopou Gold was founded in 2009 and is the number one brand specializing in ancient handmade goldware in China, certified by the China Gold Association. According to Frost & Sullivan, in 2023, Old Shop Gold ranked 7th in China's ancient French gold jewelry market revenue, with a scale of 3.2 billion yuan. It is the only brand in the top ten that focuses on ancient French gold and jewelry products. The company's stores mainly cover the core business district of high-tier cities. According to Frost & Sullivan, as of April 2024, the coverage rate of the top ten shopping centers in China reached 80%, ranking first among Chinese gold and jewelry brands. Clear store location criteria play a critical role in establishing brand positioning and screening customer groups. As of 2024.6.11, the company has a total of 33 stores, covering 14 cities across the country, all self-operated stores. Of these, 4 are located in SKP shopping malls and 10 are located in Vientiane's urban shopping malls.
Same-store growth became a core driver of performance in 2023, with leading department stores performing better. The company's revenue in 2023 was 3.18 billion yuan, a sharp increase of 146% over the previous year, far exceeding the historical annual level. Among them, the revenue of offline stores in mainland China was 2.663 billion yuan, up 141%; the 2021-2023 revenue CAGR2 was 54%, and the year-end CAGR2 was 15%; China's Hong Kong and Macau revenue in 2023 was 0.155 billion yuan, contributing 4.9% of total revenue. The low base growth was high. The same increase was 584% in 2023, the revenue CAGR2 for 2021-2023 was 239%, and the number of stores increased by 1 to 2 in 2023. The top five stores performed better than average. In 2023, total revenue increased 158%, accounting for 39.1% of total revenue.
Under the direct management model, single-store profit flexibility is considerable, and the profit level increased significantly in 2023. In 2023, the company achieved net profit of 0.416 billion yuan, an increase of 340%, far exceeding the net profit level for the 2017-2022 calendar year. The net interest rate for 2023 was 13.09%, a significant increase over the previous year. The company expects to achieve net profit of 0.55-0.6 billion yuan in 2024H1, a year-on-year increase of 180%-205%. We believe this is mainly due to the considerable profit flexibility brought about by same-store growth under the company's fully directly-managed store business model. Looking at split profit indicators, the company's gross margin has generally been stable since 2021, and the sharp increase in net interest rate is mainly due to the decline in expense ratios. In 2023, sales/management/R&D expenses were 18.2%/5.3%/0.3%, respectively, down 4.7/2.0/0.3 PCT year on year. Among them, shopping center and platform commissions, rental expenses, and bank fees for the sales expenses section increased year-on-year as revenue increased. They are variable costs, while employee costs, depreciation and amortization, advertising and promotion expenses, etc. are not directly related to the expansion of revenue scale. They are relatively fixed cost items, and their share of revenue gradually declines as the scale expands, which is the main reason for the improvement in cost rates.
? The driving force for same-store growth: Brand & craftsmanship & materials give long-established store products investment and heritage value.
24H1 domestic consumption is weakening and the offline retail business is under pressure. We believe that the contrarian increase in performance of old stores is mainly related to its brand positioning, product differentiation, and pricing model. 1) The investment philosophy of high-net-worth individuals has changed, and gold has become the first choice. According to Hurun Baifu, in 2023, the old store Gold entered the top ten for the first time in the ranking of the most popular jewelry brands among high-net-worth people in China, becoming the second Chinese gold and jewelry brand to be on the list after Zhou Daifu. As a scarce brand that uses gold as its main raw material and is positioned as a high-end brand, it has fully borne the growing demand for gold investment and collection from high-net-worth individuals. 2) Successive launches of ancient French gold, gold and diamond series leading the industry trend, and the brand influence has greatly increased. All of the company's products are independently designed and developed, and can be continuously iteratively optimized to efficiently promote and iterate while maintaining the competitiveness of core products. Since 2021, more than 100 products have been iterated every year, the frequency of updates of more than 100 new products, and the proportion of iterative products and new products in each stable contribution from 2021 to 2023 is a high single-digit revenue share. 3) All of the company's products are priced per piece. The pricing logic is more similar to luxury jewelry. Unlike the model of mainstream gold and jewelry brands, the average price increase of old store products is or slower than the increase in gold prices when gold prices rise faster, and they have a certain price advantage.
Future space: Using luxury brands in Greater China as a reference, there is still considerable room for opening a store. Considering the brand tone and target customer base of the old gold store, we think its store space can target the top luxury overseas Hermes and LV in Greater China, as well as high-end jewelry brands Bulgari, Cartier, Van Cleef & Arpels, Tiffany, etc. Looking at mainland China, the number of old gold stores is close to Hermès, Van Cleef & Arpels, Bulgari, etc., less than LV, Cartier, Tiffany, etc. In the future, the company is expected to strengthen cooperation with high-end projects under China Resources Vientiane, Swire Properties, etc., and open two stores at the same time. At the level of Hong Kong, Macao, Taiwan and overseas, there are currently few established stores, and there is still plenty of room to expand against luxury brands. In terms of average store revenue, thanks to the sharp increase in same-store sales in 2023, we estimate that old gold stores are close to the level of overseas first-tier luxury jewelry stores in Greater China.
Profit forecast and investment rating: We expect net profit to mother for 2024-2026 to be 1.047/1.333/1.679 billion yuan, respectively, an increase of 152%/27%/26%. The company is a scarce high-end ancient gold brand. It is expected to achieve significantly faster performance growth than its peers in the next 3 years, enjoy a certain valuation premium, and give it a target PE of 15X in 2025, with a target market value of HK$21.9 billion, and a “buy” rating.
Stock price catalyst: same-store growth exceeded expectations and store openings exceeded expectations.
Risk factors: sharp fluctuations in gold prices; store expansion falls short of expectations; weak consumer demand; risk of selecting comparable companies across markets.