Core views:

Incident: The company released its quarterly report for the third quarter of 2024. The first three quarters of 2024 achieved operating income of 52.582 billion yuan, a year-on-year decrease of 15.28%, a year-on-year decrease of 1.776 billion yuan, a year-on-year decrease of 9.60%, after deducting non-return net profit of 1.698 billion yuan, a year-on-year decrease of 14.20%. The upward trend in gold prices this year was obvious, repeatedly reaching new highs, putting a lot of pressure on terminal gold consumption.

The third quarter of 2024 achieved operating income of 12.623 billion yuan, a year-on-year decrease of 41.89%, and net profit to mother of 0.372 billion yuan, a year-on-year decrease of 46.2%, after deducting non-return net profit of 0.239 billion yuan, a year-on-year decrease of 65.25%, including non-recurring profit and loss of 0.133 billion yuan (of which government subsidies included in current profit and loss were 0.196 billion yuan).

The gross margin decreased year over year, and the expense ratio increased slightly during the period. Q3 The gross profit margin for the single quarter was 6.52%, down 0.98pp year on year and 4.19pp month-on-month. Fluctuations in gold prices had a great impact on gross margin. The expense ratio for the Q3 period was 2.61%, up 1.03pp year on year. Among them, the management expense ratio increased 0.6 pp to 1.08% year over year, and the sales expense ratio increased 0.27 pp to 1.16% year over year.

Build new industrial upgrading projects to promote the transformation and upgrading of the company. According to the “Notice Concerning Investment in Fixed Asset Projects by the Subsidiary Shanghai Laofengxiang Co., Ltd.”, the company plans to invest in fixed asset projects with 0.84 billion yuan of its own capital to build a new multi-functional complex industrial plant after demolishing the original plant. The estimated construction period is 48 months. The project implements the concept of green environmental protection, low carbon, and public welfare. After completion, it will integrate complex functions such as product production, wholesale sales, and corporate culture display to comprehensively improve the company's brand image and production and operation environment.

Profit forecasting and investment advice. The company is expected to achieve revenue of 62.2, 67.2, and 72 billion yuan in 24-26, with year-on-year growth rates of -12.9%, 8.0%, and 7.2% respectively; net profit attributable to mother was 2, 2.18, and 2.31 billion yuan, with year-on-year growth rates of -9.6%, 8.7%, and 6.1%, respectively. Referring to comparable companies, it was given a 24-year 14X PE valuation, corresponding to a reasonable value of 53.56 yuan/share, maintaining a “buy” rating.

Risk warning. Fluctuations in gold prices have led to a slowdown in demand for gold jewelry; fluctuations in raw materials have caused fluctuations in gross margin; and the decline in high-end consumer sentiment has curtailed gold and jewelry consumption.