Key points of investment:

Chao Acer released its 2024 three-quarter report: revenue for the third quarter of 2024 was 1.427 billion yuan, a year-on-year decrease of 4.36%; net profit to mother was 0.086 billion yuan, a year-on-year decrease of 17.21%, after deducting non-return net profit of 0.085 billion yuan, a year-on-year decrease of 17.71%.

Brief review and investment advice:

Net profit for 3Q24 decreased 17% year over year, and gross profit margin increased by 24.2% month-on-month by 0.9 pct. 3Q24 revenue fell 4.36% year over year to 1.427 billion yuan; net profit to mother fell 17.21% year over year to 0.086 billion yuan. 3Q24 gross profit margin 24.20% (YoY -2.25pct, month-on-month +0.90pct). Net profit margin 6.05% (YoY -0.94pct, month-on-month +0.02pct), net non-return interest rate 5.93% (YoY -0.96pct, month-on-month +0.01pct).

The cost rate for the 3Q24 period was 15.91%, a year-on-year decrease of 0.67pct. Specifically, 3Q24 sales/management/R&D cost rates were 12.25%/2.19%/1.03%, respectively, -0.3/-0.21/-0.04pct year on year.

Store status: (1) According to the WeChat account of Chao Hongji Co., Ltd., as of the end of September '24, the total number of “CHJ Chaohongji” jewelry stores was 1,482, of which 1,236 were franchised stores, a net increase of 126 over the beginning of the year; according to Single 3Q24, there was a net increase of 50 “CHJ Chaohongji” jewelry franchisees. (2) Direct stores: In 3Q24, 4 new direct-run stores were added, 3 in East China and 1 in Malaysia.

Business review: Continue 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 products to enhance the added value and competitiveness of the products. Chao Hongji Jewelry continues to focus on the brand's imprint series. The “Filigree Ruyi” and “Filigree Complete” series, designed in collaboration with famous international artists/designers, and the “Zhenjin Fanhua” and “Zhen” series of new products were well received after their launch.

Update profit forecasts and valuations. The company's net profit for 2024-26 is estimated at 0.356, 0.412, and 0.45 billion yuan, respectively. Considering that the company still has high room to expand its stores and increase the company's ROE, it was given 13-15xPE in 2024, corresponding to a reasonable market value range of 4.6-5.3 billion yuan and a reasonable value range of 5.2-6.0 yuan, maintaining the “superior to the market” rating.

Risk warning: goodwill impairment, inventory impairment, franchise management, market downturn.