Description of the event

The company released its 2024 mid-year report. The first half of the year achieved revenue of 3.43 billion yuan, a year-on-year increase of 14.2%, and net profit of 0.23 billion yuan, up 10.0% year on year; revenue for the second quarter was 1.64 billion yuan, up 10.3% year on year, and net profit to mother was 98.65 million yuan, up 16.8% year on year.

Incident comments

Against the backdrop of overall pressure on the jewelry industry in the second quarter, the company's gross profit remained basically flat in the second quarter through differentiated brand positioning and category structure, and steady store expansion. 1) Channel level: In the first half of the year, there was a net increase of 52 stores (2023H1 net opening of 60), opening 146 new stores (130 new 2023H1), and closing 94 stores (closing 70 with 2023H1). There was a net increase of 69 franchisees, 17 self-operated stores closed, and the total number of stores reached 1,451. Overall, the opening of stores was in line with expectations.

2) Category level: Revenue from the jewelry business in the first half of the year was 3.3 billion yuan, +17%. Among them, fashion jewelry revenue represented by one-price gold and inlaid K gold was 1.65 billion yuan, up 6% year on year, gross profit was 0.47 billion yuan, down 5% year on year, or was mainly due to good sales of one-price gold products with brand imprints such as IP co-branding, beads, etc., while revenue from inlaid K gold with a high gross margin is expected to decline due to industry demand; revenue from traditional gold jewelry, mainly gram-heavy gold jewelry, 1.48 Billions of yuan, up 31% year on year, gross profit of 0.14 billion yuan, up 43% year on year, or targeting young fashion groups due mainly to brand differentiation. The total number of company members exceeded 20 million in the first half of the year. Member repurchases contributed more than 50% of the revenue in the first half of the year, and post-80s, post-90s and post-00s members accounted for 85%. In the first half of the year, high-margin agency brand licensing fees and franchise service fees were 0.12 billion yuan, +41% year over year, while leather goods revenue was 0.15 billion yuan, -26% compared to the same period, still under pressure — a comprehensive reflection:

While maintaining its position as an advantageous category with a strong sense of style and design, the company accelerated the layout of universal gold jewelry. At the same time, the branded gold business of third-party suppliers grew rapidly, compounding the rise in gold prices. Gold products provided the main support for the gross profit growth of the jewelry business. The gross profit amount in the first half of the year was 0.83 billion yuan, an increase of 2.5% over the previous year, and the gross profit amount for Q2 was 0.38 billion yuan, which was basically the same as the previous year.

Combined with cost investment optimization, the overall growth rate of profit to mother in the second quarter was faster than revenue. During the reporting period, the company incorporated elements of traditional culture to further enhance product strength, and invited Professor Yang Mei/non-genetic inheritor Zhang Fan to upgrade “Flower Silk? The “Fengyu Bridge” series continues to increase research and development of the gold product line, strengthen the core advantages of beaded products, optimize the IP series product layout, and continue to enhance brand influence by collaborating with new brand ambassadors Song Yi and Xiaohongshu to accurately launch and incubate multiple series of products such as “Butterfly Dance” and “Zhenjin Fanhua”. At the same time, Q2 sales expenses were 0.19 billion yuan, a year-on-year decrease of 14%. Judging from the breakdown, employee remuneration, shopping mall expenses, advertising fees, and depreciation of usage rights assets in the first half of the year decreased by 10%, 22%, 5%, and 10%, respectively. From this, it is deduced that under direct store adjustments and refined marketing campaigns, overall sales expenses were optimized, making Q2 net profit growth faster than revenue.

Investment advice: The company maintains its goal of hitting 2,000 stores in 2025. As the company steadily expands stores and gradually dominates the wholesale business, the cost investment initially showed a scale effect; the product side continues to strengthen independent R&D and IP empowerment of superior gold categories, continuously improving the added value and competitiveness of products, while at the same time, the trendy and young brand positioning forms strong stickiness with the target customer base, and the jewelry business may have good growth potential. The dividend per share was 0.1 yuan, for the first time in recent years. For the first time in recent years, a cumulative dividend of 0.35 yuan per share was achieved in the 2024 calendar year, and the dividend rate corresponding to the stock price on September 10 was 7.7%.

EPS is expected to achieve 0.42, 0.49, and 0.56 yuan in 2024-2026, maintaining a “buy” rating.

Risk warning

1. The opening of the store fell short of expectations;

2. Consumer demand or aesthetic trends have changed greatly.