Description of the event

The company released its 2024 mid-year report. During the reporting period, the company achieved revenue of 10.99 billion yuan, a year-on-year increase of 31.4%, net profit of 0.4 billion yuan, a year-on-year decrease of 3.0%; revenue for the second quarter of a single quarter was 4.67 billion yuan, up 41.3% year on year, and net profit to mother was 0.13 billion yuan, down 28.3% year on year.

Incident comments

The rise in gold prices stimulated investment-based demand. Gold bar sales drove a relatively rapid increase in revenue in the second quarter, and gross profit declined slightly. 1) Channel level: In the first half of the year, there were 6 net stores (11 new stores opened and 5 closed), with a total number of stores reaching 93, including 84 in North China and 9 outside of North China; at the same time, 8 online platforms have entered online platforms and opened 17 online stores. The sales scale of the original e-commerce platform has grown steadily. Platforms with a short entry period helped increase performance and strengthen live streaming sales and video account operations, contributing to e-commerce revenue of 2.3 billion yuan in the first half of the year, an increase of 50% over the previous year. 2) Category level: In the second quarter, the average gold price rose 23% year on year, stimulating the purchase demand for investment gold and increasing the industry's consumption of investment gold products by 72% year on year. As an important dominant product of the company, gold bars and coins contributed to a relatively rapid increase in revenue in the second quarter, and gold jewelry sales remained stable. As a result, the company's share of investment income is expected to increase further in the first half of the year (54% in 2023), gold jewelry revenue share or decline (37% in 2023), and changes in category structure may be the main reason why gross margin fell 3.8 pct to 7.8% year on year in the single second quarter. However, the increase in investment gold sales also mitigated the gross profit pressure in the second quarter compared to the previous year, causing the margin pressure in the second quarter to decline year-on-year 5.4%

Based on medium- to long-term development strategies, channel expansion and product promotion still led to an increase in sales expenses, resulting in a relatively large decline in return to mother. In addition to the online and offline channel development mentioned above, in the first half of the year, the company launched a series of products co-branded with Beihai Park and new products such as the 2024 “Oriental Garden”, “mystyle” and “Pepsi Ruyi” series, and signed a “Beijing Gift” trademark license agreement with the Beijing Culture and Tourism Association. Overall sales of the independent product line increased year-on-year. In terms of cost investment, Q2 sales expenses were 0.12 billion yuan, an increase of 52% over the previous year. In terms of details, employee remuneration, property discounts, online platform service fees, and advertising fees in the first half of the year increased by 19%, 18%, and 28%, respectively; Q2 management/finance expenses were 13.46 and 9.81 million yuan, respectively, with year-on-year changes of -5% and 39%, respectively. The main cost increases are still reflected in sales expenses such as store opening expenses, employee recruitment, and e-commerce operations. This shows that as a fully direct-run jewelry company, the company adheres to the medium- to long-term strategy of omni-channel expansion. The layout of high-quality outlets and the development of e-commerce channels are progressing steadily, and at the same time, empowering the capital's cultural attributes to continuously improve its product strength.

Investment advice: As a leading jewelry company in the Beijing-Tianjin-Hebei region, whether it is the brand advantage of strong quality control, cost performance, and excellent service, or the medium- and long-term strategy of full direct management, omni-channel, and gold bars, gold and gold jewelry, the company has not changed during the current weak period of the industry. From a long-term perspective, the company still has a lot of room to improve its brand volume and market share through cross-regional direct store expansion, rapid e-commerce business cultivation, and continuous improvement in gold jewelry product strength. EPS is expected to achieve 0.93, 1.05, and 1.16 yuan in 2024-2026, maintaining a “buy” rating.

Risk warning

1. Gold prices have changed again, or have a continuous impact on short-term demand; 2. Store opening or e-commerce business development falls short of expectations.