According to information from the Hong Kong Stock Exchange, Mengjinyuan (02585.HK) will conduct its initial public offering from November 21 to November 26, with an offering price range of HK$12 to HK$14.4 per share, with each lot consisting of 200 shares, and plans to go public on November 29. Prior to this, Mengjinyuan also updated its performance dynamics, with the financial data for the first half of the year showing a good development momentum.

Since submitting its prospectus to the Hong Kong Stock Exchange this year, every step of Mengjinyuan's listing activities has captured the attention of investors, especially against the backdrop of a newly emerging bull market with international gold prices continuing to rise this year, while companies in the industry have shown a "declining trend" in their performances in the first half of the year, discussions about Mengjinyuan's value and future growth potential have become increasingly heated.

So, how should one view the opportunities facing its listing at this moment?

1. Surprise in the semi-annual report, with continuous revenue growth.

According to Frost & Sullivan, based on gold processing volume, Mengjinyuan is the third largest gold jewelry brand in China. It is also the only brand to have been continuously shortlisted for six years in the China Gold Association's rankings of the "Top Ten Gold Jewelry Processing Enterprises" and "Top Ten Gold Jewelry Sales Revenue Enterprises."

In terms of its revenue over the past three years, they were 16.87 billion yuan, 15.72 billion yuan, and 20.21 billion yuan, with a compound annual growth rate of 9.5%. Of this, gold jewelry and other gold products occupy a core position in operations, contributing 19.88 billion yuan in 2023, accounting for 98.4% of revenue.

In addition to gold jewelry and other gold products, Mengjinyuan has also expanded its business portfolio to include K gold jewelry, inlaid jewelry, and services. As of now, Mengjinyuan has several product lines including Qixiang·Ancient Method, Xi Shi Lin, Little Dream Voyage, Qifu New Life, Stella, Crown, and Flower Fairy Bride.

Image source: Prospectus

From the operational performance in the first half of this year, the core business of gold jewelry and other gold products has been making steady progress, with a clear upward trend. Specifically, in the first half of the year, Meng Jinyuan's overall revenue increased by 7.1% year-on-year to 9.98 billion yuan.

While achieving steady overall revenue growth, Meng Jinyuan's gross margin has also been boosted, rising by 0.5 percentage points from 5.7% in the first half of last year to 6.2% in the first half of this year.

Overall, the gross margin appears to be lower compared to most gold jewelry brands, mainly due to the high proportion of Meng Jinyuan's gold jewelry and other gold products business. The more transparent pricing mechanism results in a generally lower gross margin for gold products.

According to gtja's estimates, the gross margin for investment-type gold products ranges from 1% to 6%, while that for ordinary pure gold is between 5% and 10%. Due to their uniqueness, the gross margin for piece-based gold products can reach 20% to 40%, such as gold inlaid with diamonds and gold inlaid with jade. Therefore, if we discuss by business, it can be seen that Meng Jinyuan's various business gross margins are on par with the industry normal levels and are also showing a trend of annual growth.

It is not difficult to see that Meng Jinyuan has delivered a growth performance against the backdrop of overall industry pressure, achieving high-quality growth in both revenue and profitability.

2. In the 'long slope and thick snow' track, consolidate the basic market to open up growth space.

In addition to outperforming the industry in performance, several aspects below can also clearly indicate some opportunities for Dream Gold Garden.

Firstly, considering the development trends of the gold and jewelry market it operates in, the growth potential of Dream Gold Garden remains considerable, which is an important highlight.

In the past few years of macroeconomic fluctuations, the demand for gold as a safe haven and the spread of rational consumer spending have led consumers, especially younger consumers, to reflect on their luxury goods consumption, thus pursuing products with higher value retention.

Data shows that in 2023, the young demographic aged 25 to 34 gradually became the main force in gold consumption, with the proportion of young people purchasing gold rising from 16% to 59%. The China Gold Association states that in the future, consumers from the "Z Generation" under the age of 25 will become the main force in gold consumption.

Driven by demand, the scale of China's gold and jewelry market continues to expand. According to Frost & Sullivan data, the sales revenue of China's gold and jewelry market reached 518 billion yuan in 2023, and it is expected to further grow to 811 billion yuan by 2028, with a compound annual growth rate of 9.4%.

Image source: Prospectus

In the face of the continuously expanding domestic gold and jewelry market and the growing demand for gold trinkets from consumers, Dream Gold Garden is currently also meeting market needs through continuous product innovation. For example, the "Master Craftsman’s Tradition" series products launched last year, through in-depth collaboration with the IPs of three-hole culture and the eight wonders of Yanjing, successfully created a product line combining "craftsmanship + culture," providing a new pathway and platform for the inheritance and exhibition of traditional culture and intangible cultural heritage skills in contemporary society.

Furthermore, given that Dream Gold Garden holds a core position in the industry, it will continue to benefit from the Matthew Effect in the industry.

Currently, in the domestic gold and jewelry sector, the market concentration is relatively high. If divided according to business revenue from gold and jewelry, Dream Gold Garden ranks fifth, and the top five brands together occupy nearly half of the market share.

In this competitive landscape, many small brands lack the luxury of investing in research and development, which also means that new competitors find it hard to occupy consumer minds and establish their own brand advantages. As one of the market leaders, Dream Gold Garden can leverage its brand's high recognition, along with a widely distributed channel network across the country; the potential of its business is self-evident.

III. Conclusion

From the current perspective, Dream Gold Garden faces a favorable market opportunity for its IPO.

On one hand, on November 15, the National Bureau of Statistics released data showing that the national service production index increased by 6.3% year-on-year in October, and the total retail sales of consumer goods amounted to 4,539.6 billion yuan, growing by 4.8% year-on-year. This indicates that with the accelerated implementation of stock policies and the strong introduction of a package of incremental policies, the economic running recovery momentum has strengthened, and the opportunities for consumer stocks will become clearer. In this context, star consumer stocks represented by Dream Gold Garden are more likely to gain bullish market attention and focus.

On the other hand, from the perspective of the Hong Kong stock new stock market, a warming trend is also continuing to show. Data shows that as of November 21, there have been 57 new stocks listed on the Hong Kong stock market this year, raising a total of over 70 billion Hong Kong dollars. In the same period last year, this figure was 35.728 billion Hong Kong dollars.

GTJA Group CEO Bonnie Chan Yi-Ting stated, "Recently, the Hong Kong Stock Exchange welcomed the largest new stock listing in Asia this year and the second largest globally; refinancing activities are also very active, showing the depth and attractiveness of our market. The number of applications for new stock listings further solidifies Hong Kong's position as Asia's preferred center for new stock fundraising."

Under this market rhythm, the subsequent listing of Dream Gold Garden is believed to be quite interesting.