What is the purpose of high-level stock allocation?
As gold prices soar, gold stores are in distress. In this context, Lao Pu Gold has been on the rise.
Since its listing in June of last year, the stock price of Lao Pu Gold has been nearly insane.
At the beginning of April, Lao Pu Gold's stock price once rose to 881 Hong Kong dollars, becoming the top stock in the Hong Kong market, compared to the issue price of 40.50 Hong Kong dollars, it has increased 20 times in less than a year.
However, in the past month, as gold prices started to fall, Lao Pu Gold's stock price has begun to continuously decline, and recently it has accelerated its drop.
What is more concerning is that facing a correction in gold prices and the high state of stock prices having increased by several times over the year, Lao Pu Gold is surprisingly choosing to conduct a share placement operation just a month before the expiration of original shares, further raising investor concerns.
Is the super myth of nearly 20 times in less than a year coming to an end?
01
Recently, Lao Pu Gold announced that it would place 4.31 million shares at HKD 630 per share, an 8% discount from the previous day, raising about HKD 2.7 billion, which is already three times the amount raised in the IPO less than a year ago.
On June 28, less than a month later, it was reported that Lao Pu Gold would face the largest scale of lock-up share release since its listing, with 142.6425 million shares held by 12 shareholders to be released, accounting for as much as 86.44% of the total share capital.
Such a huge proportion of release will theoretically have a tremendous impact on the stock price.
By then, will early investors and institutional shareholders who have already gained paper profits several times through early entry start a round of cashing in? This will attract attention.
Choosing to 'reach out' for funds from the capital markets at this time may reflect some of the difficulties faced by Lao Pu Gold.
In the placement announcement, Lao Pu Gold stated that of the 0.9 billion raised during last year's IPO, only 0.22 billion intended for overseas expansion remains unused, while the funds for domestic business expansion have already been nearly exhausted.
By the end of 2024, Lao Pu Gold's inventory significantly increased compared to the end of 2023, jumping from 1.268 billion yuan in 2023 to 4.088 billion yuan. Meanwhile, the price of raw gold materials continues to rise, leading to an increase in the cost of gold procurement.
This to some extent confirms that Lao Pu Gold has not escaped the common predicament faced by gold and jewelry companies amid skyrocketing gold prices.
Although Lao Pu Gold's Market Cap has approached 120 billion Hong Kong dollars, becoming the undisputed leader in the gold and jewelry industry, the real pressure for Lao Pu Gold has yet to come.
With the soaring stock price, Lao Pu Gold's valuation has also reached an unprecedented 73 times, which is difficult for its peers to achieve.
After all, the average valuation level of the traditional jewelry industry is only 20 times, and as a former leader in gold and jewelry, CHOW TAI FOOK's valuation is also only 24 times.
Behind the extremely high valuation is Lao Pu's unparalleled performance.
The Earnings Reports show that Lao Pu Gold's revenue for 2024 was 8.506 billion yuan, a year-on-year growth of 167.5%; net income was 1.473 billion yuan, a year-on-year growth of 253.9%.
The net income surged 2.5 times, standing out like a crane among chickens in the bleak landscape of the entire Gold Jewelry Industry.
In 2024, the single-store sales of Lao Pu Gold reached 0.328 billion yuan, far ahead of traditional gold stores which can hardly compare.
At the 2024 performance presentation, the founder of Lao Pu Gold, Xu Gaoming, directly stated that the future target is an annual sales of 1 billion yuan per store, and any stores with sales below 0.5 billion will be closed.
However, the annual sales of a single store of the luxury brand Hermès is only 0.6 billion yuan.
Even with such astonishing performance, the valuation of Lao Pu Gold has long surpassed that of luxury giants like Hermès. Compared to its performance, the extremely high valuation of Lao Pu Gold is undoubtedly driven by market sentiment.
In recent months, funds have gradually flowed out of Technology stocks and shifted towards previously undervalued Consumer stocks, combined with frequent consumer policies and the improvement of domestic demand brought about by tariff conflicts, consumer stocks have become the focus of Hong Kong stocks over the past two months.
Therefore, POP MART, Mixue Group, and Lao Pu Gold have become the 'three sisters' of Hong Kong stocks, experiencing consecutive surges over the past few months.
However, unlike the comparatively solid and stable business growth trends of POP MART and Mixue Group, under the backdrop of the overall sluggish luxury goods market and declining sales of luxury giants, the growth target of 1 billion annual sales for Lao Pu Gold seems a bit overly optimistic, at least difficult to achieve in the short term.
02
Similarly, at the 2024 Earnings Reports conference, Xu Gaoming stated, "Those selling Gold should not be outperformed by those selling Leather Goods."
However, in terms of profit margin, selling Gold jewelry is not inherently a good business.
Data shows that since its listing in the 1990s, Lao Feng Xiang's gross margin has consistently been below 10%, and the net margin is even less than 4%. Meanwhile, China Gold's gross margin once fell below 3%.
In contrast, companies like Swarovski that produce Silver jewelry have gross margins often above 70%.
Excluding brand premiums, the Precious Metals attributes of Gold, along with publicly transparent costs and strict control of the circulation in the Gold market, leave Gold jewelry companies' profit sources limited to "processing fees."
For this reason, major Gold jewelry brands are basically striving to enhance the consumer attributes of Gold jewelry through design, moving away from an investment orientation to achieve higher pricing and gain more premium space.
However, even so, a processing fee of 20% is almost the upper limit of the markup rate, or gross margin, for gold jewelry in the first twenty years of its development. Most traditional gold stores only maintain a gross margin of about 10%.
Until CHOW TAI FOOK pioneered the 'fixed price' model.
As the industry leader, through the fixed price and operations such as setting small diamonds into gold jewelry, CHOW TAI FOOK successfully raised the gross margin of gold jewelry to over 20%, but that is all.
As a latecomer, Lao Pu Gold has taken the 'fixed price' model to an extreme level.
When gold prices were still at a relatively low level, Lao Pu Gold had already pushed the price per gram of gold close to a thousand yuan through the fixed price model.
Because of this, Lao Pu Gold has achieved profits far exceeding its peers.
In the past four years, Lao Pu Gold's gross margin has remained above 40%, and the net margin in 2024 even exceeded 17%, nearly four times that of Lao Feng Xiang.
However, even so, Lao Feng Xiang's Gold is still far from Luxury Goods, or even Heavy Luxury.
It is well known that the characteristics of Luxury Goods are premium pricing, value retention, and scarcity.
Luxury Goods brands generally have their own promotional gimmicks, whether it is handmade or various types of animal skins, all serve as anchors that elevate the value of Luxury Goods and maintain their scarcity.
It is also for this reason that Luxury Goods generally undergo stable price adjustments. LV raised prices three times in a year, with the highest single increase reaching 15%; CHANEL's price has increased by over 60% in three years, and the belief that buying a bag is better than stock trading has become a mantra for many middle-class individuals.
So can Lao Feng Xiang's Gold replace the positioning of Luxury Goods in the eyes of the middle class?
Currently, Lao Feng Xiang's Gold is gradually approaching Luxury Goods in various aspects, whether it's store traffic control or limited product releases, as well as the in-store support services, Lao Feng Xiang's Gold is already very similar to Luxury Goods stores.
In terms of price increases, Lao Feng Xiang's Gold has also started stable price adjustments twice a year.
However, fundamentally, the positioning of Lao Feng Xiang's Gold as Luxury Goods still originates from the Precious Metals attribute of Gold itself, and the price increases largely rely on the continuous rise in gold prices.
As early as 2020, the number of stores of Lao Pu nationwide reached 19, but at that time the revenue was less than 0.9 billion. After that, Gold prices soared, and the price of Lao Pu Gold also began to rise rapidly.
After 2023, the pace of price increases for Lao Pu Gold has accelerated, corresponding with the drastic rise in gold prices.
In fact, in the years 2020 and 2022, the revenue and Net income of Lao Pu Gold even experienced a year-on-year decline.
In other words, the backdrop for the rapid growth of Lao Pu Gold is the one-sided increase in Gold prices.
Now, the positioning of Lao Pu Gold benefits from the rise in gold prices, but is also constrained by it.
Although the long-term trend of rising gold prices is stable, if gold prices experience significant fluctuations, can Lao Pu Gold maintain its rarity and continue to raise prices? It may be difficult.
According to media reports, a luxury goods resale shop in Shanghai stated that they do not accept products from Lao Pu Gold, as Lao Pu Gold belongs to a gold brand, and compared to luxury goods, there are few identification points, making it difficult to authenticate.
It can be seen that the luxury identity of Lao Pu Gold has not yet gained public recognition apart from the brand and consumers.
03
As early as 2020, Lao Pu Gold attempted to be listed on the Shenzhen Stock Exchange.
However, the nearly 40% gross margin, far exceeding that of its peers, became one of the questions raised by the review committee when Lao Pu Gold was rejected.
Subsequently, Lao Pu Gold switched to the Hong Kong Stock Exchange.
By the end of 2023, Xu Gaoming initiated a Pre-IPO. However, after several rounds of roadshows, the consortium led by Black Ant only offered a valuation of 5.225 billion yuan, corresponding to a PE of 12.56, which is less than one-tenth of the current Market Cap.
Whether it was undervalued in the past or overvalued now, the answer is obvious.
Excluding the hot Capital Markets and the phenomenon of long lines at stores, there are also many doubts about the quality of Lao Pu on various Social Media platforms.
An observation of past data reveals that Lao Pu Gold's investment in product research and development is relatively low.
In 2024, Lao Pu Gold's research and development investment amounted to only 19.16 million yuan, accounting for 0.2% of revenue, which is significantly lower than its peers. At the same time, Lao Pu Gold's sales expenses increased by 113% year-on-year to reach as high as 1.237 billion yuan, which is 65 times the research and development expenses during the same period.
Moreover, since 2021, over 30% of Lao Pu Gold's products have relied on outsourced production, and this proportion is gradually increasing. In contrast, Lao Pu Gold follows a high-end route, with all stores being directly operated.
Despite the strong sales in stores, in recent years, Lao Pu Gold's accounts receivable have continuously expanded, and inventory has also remained stagnant.
In 2024, Lao Pu Gold's accounts receivable have significantly increased by 113% to 0.801 billion yuan, which is highly likely due to Lao Pu Gold's collaboration with shopping malls not utilizing a fixed annual rent model, but instead adopting a flexible profit-sharing method of 'minimum rent + sales commission', choosing the higher of the two.
Therefore, most of these accounts receivable come from shopping malls, and as Lao Pu Gold continues to expand its stores, accounts receivable will accelerate accordingly.
To some extent, the current popularity of Lao Pu Gold in the high-end market is also influenced by the softness in Luxury Goods consumption and the downward shift of high-end shopping malls.
For high-end shopping malls, the priority of introducing Lao Feng Xiang Gold is not very high.
In addition, with the continuously rising inventory, this data means that Lao Feng Xiang Gold must constantly attract new customers and maintain high-speed growth in order to sustain this operational model.
Once demand decreases or consumers turn to other companies, the operational model of Lao Feng Xiang Gold will face pressure.
In 2024, China's consumption of gold jewelry has already fallen by nearly 25% year-on-year to 532 tons, and whether the future consumption of gold jewelry can maintain stable growth remains uncertain.
04
Conclusion
From the perspective of Lao Feng Xiang Gold itself, although it is under certain pressure, the company's operational status remains relatively stable.
However, the issues faced by most consumer companies often do not stem from themselves; the gold jewelry market that Lao Feng Xiang Gold is facing is also rapidly changing.
Although Lao Pu Gold positions itself as high-end, in reality, over 80% of Lao Pu's consumers are still middle-class individuals with annual spending of less than 0.05 million yuan, and this group contributes more than 40% of Lao Pu Gold's revenue.
Even though the current rise in gold prices and Lao Pu's price increases have not yet affected these people's spending, there is ultimately a limit to such prices, and today's "price and volume increase together" is difficult to maintain for long.
From the current consumer structure of Lao Pu Gold, despite claiming to be the "Hermès of jewelry," it is still far from Hermès, as well as from top luxury jewelry brands like Van Cleef & Arpels and Cartier.
Whether Lao Pu Gold can become the next French 'Hermès' still requires the test of gold prices and time. (End of text)
