3Q24 results are in line with our expectations

The company announced 3Q24 results: revenue fell 4% year on year to 1.4 billion yuan, net profit to mother fell 17% year on year to 0.09 billion yuan, and net profit after deduction fell 18% year on year to 0.08 billion yuan. The results were in line with our expectations.

Weak jewellery consumption is dragging down the company's revenue growth. Gold prices rose gradually at a high level in 3Q24. At the end of September, the price of AU9999 on the Shanghai Gold Exchange reached 595 yuan/g, up 8% from the end of June and 33% year-on-year. Higher gold prices had an adverse impact on terminal jewelry consumption. According to the National Bureau of Statistics, the gold and silver jewelry industry saw a year-on-year decline of 10.4%, 12.0%, and 7.8%, respectively, from July to September. Against the backdrop of overall pressure on the industry, Chao Hongji still insists on increasing the layout of advantageous gold products, enhancing its competitiveness, and promoting channel expansion. The company's revenue fell 4% year on year to 1.4 billion yuan during the quarter. We expect the company's jewelry business to decline slightly year-on-year, and the performance is better than the industry as a whole.

The gross margin structure declined year on year, and expenses were well controlled. The 3Q24 company's gross margin fell 2.0ppt to 23.0% year on year. We think it was mainly due to the increase in the share of gold products and wholesale channels with relatively low gross margins. Thanks to the company's better cost control and channel adjustments, the sales and management expense ratio decreased by 0.5ppt to 14.4% year-on-year during the quarter. Net profit for 3Q24 fell 17% year over year to 0.09 billion yuan. At the end of September, the company's inventory value increased relatively steadily by 10% year on year, and net operating cash flow fell slightly by 8% year on year to 0.11 billion yuan in 3Q24.

Promote multiple product lines to meet the diversified needs of the market. Chao Acer continues to strengthen its brand differentiation, highlight its “Fashion Oriental” brand tone, expand its brand influence among young people, and launch multiple product lines to meet the diverse needs of the market. Product lines such as “Flower Silk · Fengyu Bridge” and “Flower Silk Ruyi” combine elements of traditional Chinese culture; beaded products with core advantages continued to be strengthened; and IP series imprint products were iteratively updated in the first half of the year. The company's continuous promotion of product layout has also led to an increase in product strength.

Development trends

The retail environment has improved marginally since October. Management said that average daily turnover growth in terminal stores has recovered, and expressed confidence in subsequent channel expansion.

Profit forecasting and valuation

Considering that gold prices are still under some pressure, the company's 2024/25 EPS forecast was lowered by 4%/4% to 0.40/0.47 yuan. The current stock price corresponds to 12/10 times the 2024/25 price-earnings ratio, keeping the neutral rating and target price unchanged at 5.06 yuan, corresponding to 13/11 times the 2024/25 price-earnings ratio, which has 5% room to rise compared to the current stock price.

risks

Gold prices fluctuated greatly, store expansion fell short of expectations, and market competition was fierce.