Core views

This article mainly focuses on the three aspects of the competitive advantages and barriers, growth space, and valuation level of old gold stores, and answers the eight core questions the market is concerned about: 1. Why does the revenue and performance growth rate of old gold far exceed the industry? 2. Why is the product design and beauty of the old gold store unique? 3. From exquisite products to high-end brands, how can old gold conquer consumers' minds? 4. What is the biggest difficulty for competitors to imitate old gold stores? 5. From a macro perspective, how do you view the market space of high-end gold jewelry? 6. Judging from the competitive landscape, why are old gold stores superior to foreign luxury jewelry brands? 7. From a micro level, compared to foreign same-store jewelry brands, how do you view the growth space of old gold stores? 8. How to price gold for an old store? Refer to a gold jewelry company or a foreign luxury jewelry brand for valuation?

Summary of contents

1. Why does the gold revenue and performance growth rate of established stores far exceed those of their peers? The year-on-year growth rates of gold revenue and net profit of old stores in the first half of 2024 were as high as 148% and 199%, respectively. Their growth performance was particularly impressive in an environment where gold prices fluctuated high and the gold jewelry industry declined since Q2. We think the main thing is: With the support of the company's strong products, with the popularity of social content platforms such as Xiaohongshu, the company's brand successfully broke through the circle, and the number of consumers increased rapidly.

2. Why is the product design and beauty of the old gold store unique? The founder of the company has been deeply involved in the field of traditional Chinese culture and handicrafts for more than 20 years. He has founded two major brands, “Wenfang No. 1” and “Golden Treasure”. He has an excellent understanding of traditional culture and modern aesthetics, and is responsible for product design. The company is good at drawing design inspiration from classic elements of traditional Chinese culture and Buddhist culture to create a “gold+gold ware” product matrix with original designs. The products lead the new Chinese style of ancient gold aesthetics, and gold and diamond products stand out in the industry. The company's self-production ratio reached 59% in '23, and the high self-production ratio also guarantees product quality and originality.

3. From exquisite products to high-end brands, how can old gold conquer consumers' minds? Successful establishment of high-end brands requires matching brand positioning, pricing, customer base, offline channels, sales scenarios and services. 1) In terms of positioning and pricing, Old Shop Gold focuses on high-net-worth customers with aesthetic requirements for gold jewelry. The products are mainly in the 1.5-2. 0.05 million yuan price range, while peers are mostly a few thousand yuan; 2) In terms of channel matching, high-end brands must require high-end channel endorsements. The company stores are mainly located in high-end shopping malls or cultural tourism attractions in first-tier and new-tier cities such as SKP, Vientiane, and Nanjing Deji; 3) In terms of sales scenarios and services, the old stores are themed stores with classic and elegant Chinese studio scenarios. The store presents traditional Chinese classics The cultural mood and strong appeal provide customers with a high-end and exquisite immersive shopping experience.

4. What is the biggest difficulty for competitors to imitate old gold stores? In other words, where are the company's barriers? 1) The company's core categories, such as pure gold inlay, which accounted for 56% of revenue in 23 years, are mainly handmade, making it difficult for peers to imitate on a large scale in a short period of time. The top five brands in the gold and jewelry industry all sold more than 80 tons of gold in '23, which is about 20 times the volume of old gold (4.2 tons in '23). Processes such as inlay require a large number of craftsmen to complete manual rather than automated mold production. Competitors imitate old gold products and produce them on a large scale in the short term. 2) The hardest part is that if you can't establish the mentality of a high-end brand, it will be difficult for high-priced products to achieve good sales and store results.

5. From a macro perspective, how do you view the market space of high-end gold jewelry? From a global perspective, in 2023, Cartier's global jewelry retail sales were about 9.1 billion US dollars, far exceeding VCA and Bulgari (both about 2.9 billion US dollars). Mainly, Cartier's design elements were integrated into different cultures around the world and accepted by consumers in more regions. Jewelry itself is an extension of culture. Gold jewelry has a broad consumer base in China and is the largest category in the domestic jewelry market. In 2023, China's gold and jewelry market was 518 billion yuan, accounting for 63.2% of the jewelry market, more than 150 billion yuan of jade market, 60 billion yuan diamond market, 13.1 billion yuan K gold market, and 7 billion yuan platinum and silver market. The high-end brand space for gold jewelry in the domestic market is theoretically larger than other categories. From an actual point of view, compared with K gold and platinum, the value preservation properties of gold jewelry are more prominent. The space in the high-end market and the degree of premium that consumers are willing to accept depends on supply-side gold jewelry innovation. This is evidenced by the fact that since '23, old gold has sold more expensive inlay revenue than vegan gold (in '23, the revenue of gold pure gold inlay products is 1.781 billion/ +182.9%, and the revenue of pure gold gold products accounts for 1.397 billions/ +110.9%, and the revenue share of pure gold inlay products is 1.397 billions/ +110.9%. 56%, more than pure gold products).

6. Judging from the competitive landscape, why are old gold stores superior to foreign luxury jewelry brands? According to Frost & Sullivan, the size of the ancient French gold market in 2023 was 157.3 billion yuan, accounting for 31.2% of the pure gold jewelry market, and the CAGR for 18-23 was 64.6%. The CR5 of the ancient French gold industry in 2023 was 46.1%. Among them, old stores had a market share of 2% and ranked 7th. Due to their focus on the high-end market of ancient French gold, products and channels are highly differentiated, and they face less competitive pressure.

However, in the mainland luxury jewelry market, the audience of foreign brands is mainly high-net-worth people who accept Western aesthetics and values. The brand audience overlaps a lot, and the price range of products is also relatively close, so there is a lot of competitive pressure between brands.

7. From a micro level, compared to foreign same-store jewelry brands, how do you view the growth space of old gold stores? 1) Number of stores: Benchmarking luxury jewellery in mainland China, Tiffany, Cartier, and VCA had an average of 40 boutiques, covering 27 cities. As of August 4, '24, the old gold store had only entered 24 shopping malls, covering 13 cities in mainland China. In the future, the number of stores in mainland China may reach 60, and there is still room to double, and the company currently has a large number of stores in SKP and Vientiane. Looking at overseas markets, we expect 10-20 stores to open up space, from China, Hong Kong, Macao and Taiwan to overseas markets such as Southeast Asia, opening up room for the company's future development. In summary, in the medium term, we think the total number of old gold stores may be 70-80. 2) Store efficiency: We estimate that the average retail sales volume (tax included) of Tiffany, Cartier, and VCA in 23 was 0.28 billion yuan, while the average revenue of the same store in 2023 was 0.103 billion yuan (estimated store efficiency of about 0.2 billion yuan in 2024, which can already reach the same level). In the future, it is expected that the company's store efficiency will be further improved through measures such as optimizing store locations, expanding store area/SKU display, and strengthening member operations.

8. How to price gold for old stores. Refer to gold jewelry companies or foreign luxury jewelry brands for valuation? The average PE (24 years) and H share gold jewelry companies in China are 11.6x and PE (25 years) is 10.0x (as of the close of August 30, '24, Wind agreed - 180 days). Lifeng Group, which is the main jewelry business, has a current market value of about 21x for 24 years. We believe that old gold is significantly different from other gold jewelry companies in terms of pricing model, brand premium, customer stickiness, product scarcity, and high-end customer base, and is more similar to overseas luxury jewelry. Based on the high growth, excellent profitability, and leading competitive position in the high-end market, it is expected that overseas high-end jewelry brand group companies will be given a 15-20 times PE valuation range.

Profit forecast: We expect Laopu Gold's 2024-2026 revenue to be 6.99, 9.82, and 13.25 billion yuan, respectively, up 119.8%, 40.6%, and 34.9% year-on-year, and net profit to mother will be 1, 1.42, and 1.94 billion yuan, respectively, up 140.9%, 41.5%, and 37.0% year-on-year respectively, corresponding to the current market value of HK$15.3 billion (closing on August 30, 2024) PE 13.9x, 9.8x, respectively. 7.2x