The company's revenue for the first three quarters of 2024 was +8.0% year on year, and net profit to mother was +1.0% year over year. The company released three quarterly reports: 2024Q1-Q3 achieved revenue of 4.859 billion yuan (+8.0% year over year, same below) and net profit to mother of 0.316 billion yuan (+1.0%); 2024Q3 achieved revenue of 1.428 billion yuan (-4.4%) and net profit to mother of 0.086 billion yuan (-17.2%). We believe that the company uses fashion jewelry to create differentiated characteristics, that one-price gold products meet consumer trends, and channel expansion and brand enhancement drive continuous growth. We keep our profit forecast unchanged. We expect the company's 2024-2026 net profit to be 0.385/0.458/0.538 billion yuan, the corresponding EPS is 0.43/0.52/0.61 yuan, and the PE corresponding to the current stock price is 11.4/9.6/8.1 times, maintaining a “buy” rating.

Revenue performance in the third quarter was superior to that of the industry. Expenses declined steadily, and net interest rates stopped falling and stabilized at -10.4%/-12.0%/-7.8% year-on-year in July-September 2024, respectively, while the company's 2024Q3 revenue was -4.4% year-on-year, superior to the industry market. In terms of profitability, gross margins for 2024Q1-Q3/2024Q3 were 24.2%/24.2%, respectively. On a month-on-month basis, gross margins in a single quarter have stabilized since 2024; 2024Q1-Q3/2024Q3 net margins were 6.5%/6.0%, respectively, -0.5pct/-1.0pct year-on-year, respectively. In terms of expenses for the period, 2024Q3's sales/management/finance expense ratios were 12.2%/2.2%/0.4%, respectively, and -0.3 pct/-0.2 pct/-0.1 pct, respectively, compared with the previous year, and the cost ratio decreased.

Stronger franchise channels to buck the trend, consolidate the core competitiveness of products and strengthen brand potential (1) Channel expansion: The company continues to develop the market through the franchise model. 2024Q1-Q3 Chao Hongji Jewelry net increased the number of stores by 126, the total number of 2024Q3 jewelry stores increased by 40, and the total number of stores reached 1,491 at the end of the period. Under the overall pressure environment of the industry, the company continued to expand against the trend, highlighting strong brand power and differentiation advantages.

(2) Product iteration: The company continues to iterate branded products. New products such as the “Filigree Ruyi”, “Filigree Complete” series, and the “Zhenjin Fanhua” series, which were designed in collaboration with famous international artists/designers, have been well received. The company increased research and development of advantageous gold product lines and optimized the IP series layout, with remarkable results.

(3) Brand going overseas: In August 2024, the company opened the brand's first overseas store in IOI Citymall, the leading business district of Kuala Lumpur, Malaysia, to present the brand's characteristic oriental fashion jewelry to overseas consumers, steadily advance the global strategic layout, and further enhance the brand's exposure in the international market and influence in the industry.

Risk warning: Increased industry competition, falling short of expectations in franchise expansion, risk of impairment of goodwill, etc.