Key points of investment

Acer's 24Q3 performance was in line with expectations, and Q3 revenue decelerated month-on-month. 1) 24Q1-Q3: Revenue 4.859 billions/ +8.01%, net profit to mother 0.316 billion/ +0.95%, net interest rate 6.50%/-0.45pcts, net profit not attributable to mother 0.31 billion/ +0.77%; gross profit ratio 24.16%/-2.58pcts, sales expense ratio 11.62% /-1.96pcts, management expense ratio 2.00% /+0.13pcts, R&D expense ratio 0.90% /-0.07pcts ; 2) 24Q3: Revenue 1.428 billions/ -4.36%. Net profit to the mother was 0.086 billion/ -17.21%, net profit after deducting 6.05% /-0.94pcts, net profit after deducting 0.085 billions/ -17.71%. We believe that the decline in Q3 revenue was due to the continued rise in gold prices leading to consumer prudence and suppression of consumer demand, and the rise in gold prices had an adverse impact on the cost side of the company's products, so the pressure on the company's revenue and profit increased.

Channel sub-channel: Strengthen the franchise agency model, focus on improving store efficiency: (1) Direct management channels: 350 stores as of 24Q3, a net decrease of 42 from the end of 2023. We believe that the decrease in the number of direct channel stores was mainly due to channel strategy adjustments. As store efficiency increases and the pace of store opening and closing in the future is stable, there is still room for improvement. On the domestic side, in August 2024, the company opened two new direct-run stores in Hangzhou and Yixing respectively. We expect the number of direct sales channels will remain stable in the future., store optimization or Key to growth; (2) Franchise channels: The company accelerates market development and channel sinking, accelerates penetration in growth and gaps, and makes every effort to build more regional benchmark stores. As of the end of the 24Q3 period, there were 1,413 stores, a net increase of 92; (3) Overseas offline channels: In August 2024, the company opened its first offline store in Kuala Lumpur, Malaysia, to expand the company's overseas channels. We believe that with the increasing recognition and brand strength of the company's ancient gold products, there is still room for the company to go overseas.

By category: Fashion jewelry is performing well, and demand for traditional gold is rising: (1) Fashion jewelry: The company's fashion jewelry quickly promotes new products and enhances the differentiated aesthetic experience to meet the aesthetic needs of young people, break the circle with IP linkage, or drive the fashion jewelry category to continue to improve. 24Q3, the company Chao Hongji Jewelry promoted the new “Flower Silk Ruyi” and “Flower Silk Complete” series, and was well received after the launch of new products such as “Zhenjin Fanhua” and “Zhenzang”; (2) traditional gold: the rise in gold prices led investors to be more cautious, and demand was higher than the traditional gold they just needed. The high product strength in the fashion jewelry category gave back to the company's brand power. 24Q3 company won the top 500 Asian brands, which to a certain extent drove consumers to buy traditional gold products at Chao Acer stores; (3) Women's bag business: 24Q 3 Renew and upgrade original leather such as “folding bag” and “shell bag” A series of bags, adding handmade bags and buckles, and combining channel characteristics to create a differentiated product matrix. We believe that by quickly promoting new+differentiated design, the company's women's bag business is expected to improve performance.

Investment suggestions: Chao Hongji Xinchao Design is easier to enter the core business district, K gold inlay guarantees high profit margin retention; the boutique model expands efficiently, and the channel has high growth potential under a low base. The company's revenue is expected to be 6.545/7.572/8.778 billion yuan in 2024-2026, up 10.9%/15.7%/15.9% year on year, and net profit to mother is 0.385/0.44/0.51 billion yuan, up 15.5%/14.4%/15.8% year on year, corresponding to PE 11.40/9.97/8.61 times, maintaining the buy rating.

Risk warning: consumption falls short of expectations, channel expansion is blocked, franchisee management is poor