Key investment points

Gold jewelry: The ancient French gold market expands to nurture high-end jewelry brand opportunities under the trend of rational value preservation consumption.

The CAGR of the ancient gold market is expected to reach 22% in 23-28, and the penetration rate in the pure gold market will reach 53% in 2028.

Technological innovation combined with aesthetic awakening, ancient gold has become the most promising and fastest growing category in the gold and jewelry market in recent years. In 2018-2023, the market size of ancient French gold and jewellery grew rapidly from 13 billion yuan to 157.3 billion yuan, with a CAGR of 65%. With the rise of aesthetic demand to please oneself and the continuous progress of ancient gold and jewelry technology, the penetration rate of ancient French gold jewelry is expected to continue to increase. According to Frost & Sullivan, the ancient French gold market is expected to grow at a compound annual growth rate of 22% in 2023-2028, and the size of the ancient French gold market is expected to reach 421.4 billion yuan in 2028.

With a new high gold price+rational consumption, the gold and jewelry industry nurtures high-end brand opportunities. In recent years, the consumption environment has become more rational, and in the context of the continuous rise in gold prices, the properties of gold preservation and value addition have been further highlighted. Most of the products of international high-end jewelry brands are mainly diamonds, K gold, etc., and their value preservation properties are relatively weak. Demand for some luxury jewelry is shifting to the gold category, nurturing opportunities for high-end gold and jewelry brands.

Old-fashioned Gold: A pioneer in ancient gold, leading the industry with products and channels, and differentiating high-end brands.

Product: Focus on R&D and promotion of new iterations, mainly handmade+self-production models to ensure strong product strength. Laopu Gold has the chairman as the director of product research and development. It is the first brand in China to promote the “ancient gold” concept and launch “pure gold inlaid diamonds” and “gold burnt blue” products. The products are highly recognizable, and their R&D and design capabilities lead the industry.

At the same time, the company adheres to the ancient manual gold making process, and has a high self-production ratio. It combines strict product quality control to guarantee its product strength.

Channel: Positioning the core business district of high-tier cities, operating under a full direct management model, leading the industry with single-store efficiency. Old-fashioned gold stores are mainly located in prime commercial centers in first-tier and first-tier cities. The coverage rate of China's top ten high-end shopping centers is 80%, ranking first among Chinese gold and jewelry brands. All of the old gold stores are self-operated and provide an immersive consumer experience through the main scene of the study room, highlighting the high-end brand tone. The average revenue of the company's stores in 2023 was 98.89 million yuan, leading the gold and jewelry industry.

Brand: Benchmark the operating strategies of luxury brands and differentiate high-end brands. Old-fashioned gold cards are competing misplaced with high-end gold and jewelry brands with popular jewelry brands and international luxury brands to fill the gap in the market. In terms of pricing, most of the other popular brands in the gold and jewelry industry are mainly based on the gram weight pricing model. Product pricing changes as the gold price fluctuates. Old-fashioned gold stores mainly use a one-price pricing model and raise prices regularly, breaking out of differentiation. At the same time, the company's products have a certain premium compared to peers, and the customer unit price is also higher.

Growth space: 80-100 potential stores, store optimization+crowd penetration drive store efficiency improvement.

Store space: Mainland China targets high-end luxury jewelry brands, combined with opportunities from Hong Kong, Macao and overseas, with potential to open 80-100 stores. The company has high requirements for store locations. Basically, stores only enter the core business districts of China's first-tier and new-tier cities. Bulgari and Cartier currently have 65 and 49 stores in mainland China respectively. Considering that old stores have lower customer unit prices and a wider consumer audience, there is more room to open stores. At the same time, the company plans to open stores in overseas regions such as Hong Kong, Macau, and Singapore to enhance its international influence. It is expected that the number of stores opened in the medium to long term will reach 80-100.

Store efficiency space: Expanding brand influence, continuous optimization of stores, and the penetration of high-net-worth individuals driving the improvement of store efficiency.

Most of the existing stores in old stores are located on the B1 and 2nd floors. The store area is small, and there is plenty of optimized space in the location and area of the store. Currently, the penetration rate of loyal members of old stores among high-net-worth individuals is 6.4%, and it is expected to continue to increase. In the future, as the company's brand influence increases, store optimization and crowd penetration will drive the continuous growth of store efficiency.

Profit forecasting and valuation

Old-fashioned gold is the pioneer of ancient gold in China. It differentiates the positioning of high-end gold jewelry and leads the industry in terms of products and channels. In the future, as the brand's influence expands, there is plenty of room for growth in terms of store opening and store efficiency. We expect the company to achieve a net profit of 1.13/1.55/ 1.93 billion yuan in 24-26, an increase of 173%/36%/25%, respectively. The corresponding PE is 29.3/21.5/17.2 times, respectively. For the first time, coverage is given an “increase” rating.

Risk warning

Other risks include uncertain gold price fluctuations, domestic consumption recovery falling short of expectations, increased industry competition, and corporate brain draining/new product incubation falling short of expectations.