Key points of investment:

Old-fashioned gold: the number one brand of ancient Chinese gold, leading the industry in profitability. Established in 2009, Laosepo Gold is the first brand in China to promote the ancient gold concept and gold burnt blue products. In terms of revenue in 2023, the company's shares in the ancient French gold and jewellery market in China were 2.0% and 0.6% respectively. Among all gold and jewelry brands in China in the year 2022 to 2023, the company ranked first in single-store sales for two consecutive years. At the end of 2019, it was the first to launch pure gold inlay products in the industry. During the period 2017-2023, the compound annual growth rate of the company's operating income and net profit to mother was 39.5% and 53.0%. In the first half of 2024, the company achieved revenue of 3.52 billion yuan, a year-on-year increase of 148.3%, and net profit to mother of 0.588 billion yuan, an increase of 198.8% year-on-year.

The gross sales margins in 2020-2023 were 43.1%, 41.2%, 41.9%, and 41.9%, respectively. The gross sales margin was significantly ahead of Youshang. In 2023 and 2024H1, after the company's revenue scale effect became apparent, profit flexibility was released, and net profit margins reached 13.1% and 16.7%, respectively.

Industry: The market space for ancient gold products is vast, and the company is a high-end ancient gold leader. The market space for ancient gold products is large and the growth rate is excellent. In 2017, Chow Tai ?$#@$ launched the “Heritage Series” of ancient French gold products. With established brand value and extensive channel networks, gold and jewelry brands began to launch ancient gold products one after another. Since the third quarter of 2018, gold prices have once again begun to fluctuate and rise. The ancient gold process was introduced, and the value-preservation and value-added attributes of gold jewelry were once again highlighted. Ancient French gold grew at a compound annual growth rate of 64.6% every year in 2018-2023. In 2023, the size of China's ancient French gold jewelry market is 157.3 billion yuan. It is estimated that between 2023-2028, ancient French gold jewelry is expected to maintain a compound growth of more than 20% each year, and the scale of ordinary gold jewelry is expected to shrink steadily. The company's market share can be expected to increase. The total market share of the top five brands in the ancient French gold and jewelry market in China is 46.1%. Among them, Chow Tai Fook's market share is the absolute leader, about 20%, and the old gold market share is 2.0%, ranking 7th. Although the company was the first to launch ancient French gold jewelry in the industry in 2009, due to its high-end brand positioning and limited channel network, its market share is at a low level, and there is huge room for improvement.

Core competitive advantages: precise positioning of high-end jewellery+original design and strict quality control guarantee product differentiation+strict selection of high-end business districts to target the target customer base. In terms of products, the company accurately positions high-end jewellery segments to avoid competition in the traditional gold and jewellery industry. The products adhere to original design, and the R&D cost rate is at the leading level in the industry. The company uses a production model where self-production is the main focus and outsourced processing is assisted, and the self-production ratio is about 60%. Furthermore, the company strictly controls the supply chain system to ensure the final presentation of products. In 2023, the average price of the company's pure gold inlay products was 1,043 yuan/gram, and the average price of pure gold products was 702 yuan/gram. After conversion, the price of a single gram was higher than that of the friend brand, and the premium capacity was outstanding. In terms of channels, in order to meet the high-end positioning of the brand and products, the company's offline stores are all self-operated, and the stores are concentrated in high-end shopping malls in the core business district of first-tier and first-tier cities. Among them, the number of stores in Beijing accounts for more than 30%. Core high-end business districts such as Beijing SKP and Vientiane City systems have a dual store layout. The brands entering the same business district are mainly luxury jewelry brands and Hong Kong-funded jewelry brands. The number of the company's stores increased steadily from 22 at the end of 2021 to 33 at the end of 2024H1. In 2023 and 2024H1, same-store sales increased by 115.4% and 104.2%, respectively. According to our estimates of the company's single-store model in first-tier and new-tier cities, the net profit margin at the store level is about 24%, and the store's profitability is impressive.

Growth space: domestic market store expansion+upgrading, overseas market strategic layout. We selected four international luxury jewelry brands, Tiffany, Cartier, Bvlgari, and Van Cleef & Arpels. The average values of stores in mainland China, Hong Kong and Macau, Singapore, and Japan were 47, 15, 4, and 38, respectively. In the mainland China market, based on an excellent single-store model, the company has the space to open stores. It is expected to open 4/2 new stores every year from 2024-2026. For existing stores, the company expects to expand the store area, obtain better store locations, and increase single-store sales. In terms of Hong Kong, Macau and overseas markets, the company is located in Hong Kong, Macau, Singapore, and Tokyo in China, and is expected to open 1/4 new stores every year from 2024-2025.

Profit forecast, valuation analysis and investment suggestions: The company's 2024-2026 net profit to the parent company is expected to be 1.094/1.324/1.532 billion yuan, up 162.9%/21.0%/15.7% year on year, corresponding EPS of 6.50/7.86/9.10 yuan, and the closing price on September 23 corresponding to 2024-2026 PE is 17.9/14.8/12.8 times. As the leader of high-end ancient gold jewelry, it is based on differentiated brand positioning and future 2-3 Domestic market store expansion and overseas market layout this year are expected to achieve faster growth than the industry. Covered for the first time, a “Accumulated Holds-A” rating was given.

Risk warning: Domestic and overseas store expansion falls short of expectations; competition for ancient gold products intensifies; gold prices fluctuate greatly.