Description of the event

The company released its 2024 three-quarter report. 2024Q1-Q3. The company achieved revenue of 4.859 billion yuan, an increase of 8.01% year on year; realized net profit due to mother 0.316 billion yuan, an increase of 0.95% year on year; and realized net profit after deducting non-return to mother 0.31 billion yuan, an increase of 0.77% year on year.

Incident reviews

2024Q3's revenue declined by a single digit, and its performance fell short of revenue. On the revenue side, 2024Q1-Q3, the company achieved revenue of 4.859 billion yuan, an increase of 8.01% over the previous year. Among them, 24Q1-24Q3 achieved revenue of 1.796, 1.635, and 1.428 billion yuan, respectively, with year-on-year increases of 17.87%, 10.33%, and -4.36%. Since the second quarter of this year, domestic gold and jewelry consumption has continued to be sluggish, and the company's revenue declined slightly in the 3rd quarter, showing strong business resilience. On the performance side, 2024Q1-Q3 achieved net profit of 0.316 billion yuan, a year-on-year increase of 0.95%. Among them, 24Q1-24Q3 achieved net profit of 0.131, 0.099, and 0.086 billion yuan respectively, up 5.47%, 16.76%, and -17.21% year-on-year. In the first three quarters of 2024, the company's net profit growth rate fell short of the revenue growth rate, mainly due to a 2.59pct drop in gross sales margin, a decline in net investment income, and an increase in inventory price reduction preparations. In terms of channels, as of the end of 2024Q3, the company had a total of 1,763 stores, including 1,491 in the jewelry business, a net increase of 40 compared to the end of 2024H1, and 272 in the leather goods business. On the product side, the company continues to increase product line research and development in the superior gold category, optimize the IP series product layout, and complete the update and iteration of the original imprinted product “filigree series” to enhance the added value and competitiveness of the products.

2024Q3's net interest rate fluctuated in a single quarter, and operating cash flow performance was excellent. In terms of profitability, in 2024Q1-Q3, the company's gross margin fell 2.6 pct year on year to 24.2%, and 24Q3 gross margin fell 2.3 pct year on year to 24.2% year on year, but increased 0.9 pct month on month. The company's gross margin declined year on year. We expect the share of revenue from franchise channels to increase and the share of revenue from gold products to increase. In terms of cost ratio, the total cost rate for 2024Q1-Q3 decreased by 2.0pct to 15.0% during the period, of which the sales/management/R&D/finance ratio was 11.6%/2.0%/0.9%/0.5%, -2.0/-0.1/-0.1pct compared to -2.0/+0.1/-0.1pct.

In 24Q3, the total cost ratio declined by 0.66 pct to 15.9%. Among them, the sales/management/R&D/finance ratio was 12.3%/2.2%/1.0%/0.4%, -0.3/-0.2/-0.0/ -0.1 pct compared to -0.3/-0.2/-0.1 pct. Under the combined influence of 2024Q1-Q3, the company's net sales profit margin was 6.5%, down 0.5 pct year on year, and 24Q3 net sales margin fell 1.0 pct year on year to 6.0%. In terms of inventory, as of the end of 2024Q3, the company's inventory was 2.913 billion yuan, up 9.7% year on year, and the number of inventory turnover days was 205 days, a decrease of 13 days year on year. In terms of cash flow from operating activities, 2024Q1-Q3's net operating cash flow was 0.445 billion yuan, a year-on-year decrease of 8.4%.

Investment advice

In the first three quarters of 2024, it is expected to benefit from the active expansion of the company's offline franchise channels, meet consumer demand, and achieve a high year-on-year increase in the number of units on the revenue side and positive growth on the performance side, showing strong operational resilience against the backdrop of pressure from the external environment. Considering the overall marginal weakening of the gold and jewelry industry in the 3rd quarter, we slightly adjusted our profit forecast. The company's 2024-2026 EPS is 0.40, 0.47, 0.57 yuan, and the closing price on October 31 is 4.94 yuan. Corresponding to the company's 2024-2026 PE is 12.3, 10.5, and 8.7 times, maintaining a “holds-A” rating.

Risk warning

Gold prices fluctuate greatly; e-commerce channel expenses increased; franchise channel expansion fell short of expectations; risk of impairment of goodwill.