2024H1's revenue increased 14%, net profit to mother increased 10%, and overall performance was excellent.

The company's 2024H1 revenue increased 14.2% year on year to 3.43 billion yuan, gross margin decreased 2.7% to 24.1% year on year. The decline in gross margin was mainly due to changes in channel structure and product structure. The share of the company's traditional gold jewelry business and franchise business with low gross margin continued to rise during the period. The sales expenses ratio decreased 2.7 pcts to 11.4% year on year, excellent cost control capabilities, and management expenses increased slightly by 0.3 pcts to 1.9% year on year. In summary, the net profit margin decreased slightly by 0.2 pcts to 6.7% year on year. Net profit from parent increased 10% year-on-year to 0.23 billion yuan. Under a volatile environment, the industry's operating stability led the industry, and overall performance was excellent. The company announced that it will distribute an interim dividend of about 0.1 yuan/share, and the dividend payment rate is 38.72%, focusing on shareholder returns.

2024Q2:2024Q2 revenue increased 10.3% year over year to 1.64 billion yuan, gross margin decreased 2.4 pcts to 23.3% year over year, sales expense ratio decreased 3.2 pcts to 11.3% year over year, net income to mother increased slightly by 0.3 pcts to 6% year over year, net profit increased 16.8% year over year to 98.65 million yuan. Fluctuations in the Q2 consumer environment and rising gold prices had an impact on consumer terminal sales. With Chaohongji's store expansion speed and highly differentiated products The advantage is that in an uncertain environment, the company still achieved excellent performance.

By channel: 1) Self-management: Store restructuring + residents' willingness to spend is weak, and sales through self-operated channels have declined slightly. 2024H1's self-operated channel revenue fell 3.98% year on year to 1.72 billion yuan. Among them, the jewelry business's sales revenue through third-party platforms fell 4.12% to 0.54 billion yuan year on year. Due to the weak willingness of residents to spend jewelry, single-store sales through offline channels were under pressure. At the same time, the self-operated channel was in the structural adjustment stage. As of the end of 2024H1, the number of self-operated stores in the company's jewelry business was 257, with a net of 17 in the first half of the year; in the face of increasingly competitive e-commerce, the company continued to enhance its online business brand Harmonize and gross profit levels, and improve sales quality by optimizing product structures and pricing strategies.

The gross margin of 2024H1's self-operated channel fell slightly by 0.71 pcts to 31.09% year on year. We determine that the decline in gross margin was mainly due to an increase in the share of low-gross margin terminal weight gold sales during the period.

2) Agents: Franchise stores continue to expand, and the speed of store expansion exceeds expectations. Revenue from the 2024H1 franchise business increased sharply by 43.66% year on year to 1.65 billion yuan, and gross margin fell 2.72 pcts to 17.19% year on year due to an increase in the sales share of key heavy gold sales. As of the end of 2024H1, the number of franchised agents expanded at 1,194, and the net opening of 69 in the first half of the year showed a rapid expansion trend ((our pre-order stores picked up goods slightly). The company previously proposed the goal of expanding stores to exceed 2000 in the jewelry business by 2025. Based on the company's current pace of store expansion, we judge that this goal is highly achievable. Through deepening the density of store layout, the company's market share is expected to gradually increase.

By product: The product strength of the jewelry business continues to improve, and the women's bag business is still recovering. 1) Jewelry business: 2024H1's fashion jewelry business revenue increased 5.97% year on year to 1.65 billion yuan, and traditional gold business revenue increased 31.37% year on year to 1.48 billion yuan. Under the fluctuating trend in the first half of the year, the company still adhered to the principle of prioritizing product strength and focused on brand imprint products. The “Fengyu Bridge” series was upgraded and launched at the same time (filigree? “Good luck”, (filigree? The “Complete” series enhances product and brand competitiveness. 2) Leather goods business: 2024H1's leather goods business revenue fell 26.07% year on year, and the women's bag business is still recovering.

Inventory turnover increased, and overall operating conditions were steady. The number of inventory turnover days of the 2024H1 company was shortened by 27 to 189 days year on year. We determined that the increase in the company's share of franchise business led to an increase in inventory turnover efficiency. The number of accounts receivable turnover days remained flat at 15 days year on year, and the net cash flow from the operating activities of the 2024H1 company fell 8% year on year to 0.34 billion yuan. We determined that the year-on-year decline in operating cash flow was mainly due to the company's increase in inventory size at the end of the period, and the overall downstream repayment trend remained steady.

We anticipate a 14% increase in the company's 2024 results. In the short term, due to fluctuations in the consumer environment, it will have an impact on the brand company's direct business jewelry sales and franchise channel delivery. After considering channel expansion, we expect the company's revenue/performance to maintain a relatively rapid growth trend in 2024. Currently, we expect the company's revenue to increase by 12% and performance to increase by 14% in 2024.

Profit forecast and investment advice: The company's channel strategy transformation in 2019 opened up room for growth, while product design capabilities continued to improve, leading the industry in digital efficiency. Taking into account the potential risk of impairment of women's clothing goodwill, we predict that the company's net profit due to mother in 2024-2026 will be 0.381/0.441/0.51 billion yuan. The current stock price corresponds to the 2024 PE 10 times, maintaining the “Flower Growth” rating.

Risk warning: Store expansion falls short of expectations; demand recovery falls short of expectations; raw material prices fluctuate.