The increase in environmental protection cost of silver production brings pressure on gross profit margin, but silver price is expected to bottom out.
Transformed into omni-channel O2O in 2013, and operated jewelry e-commerce platform csmall
The transformation led to a sharp drop in profits in 2015, but is likely to rebound in 2016
Top Ten Silver in China
The company's silver production capacity in 2012-2017 is basically maintained at 250t, ranking in the top 10 of Chinese silver enterprises, and is expected to expand to 350t and 450t in 2016-2015. the price of silver fell from 2011 to 2015, driving down the gross profit margin of the company's manufacturing business. however, in view of the current higher silver futures prices, the decline in waste silver production and the widening gap between supply and demand of silver, it is expected that the spot price of silver will bottom out and there is a greater probability of rebound in the future.
The downstream layout of the company, the transformation of omni-channel O2O
As government environmental regulations have become more stringent since 2014, silver companies have increased the cost of dealing with emissions, which has also brought pressure on gross profit margins. Since the end of 2013, the company has launched its own brand and brand collection stores downstream of silver jewelry, which are mainly sold in the form of franchise stores in East China. The number of stores is expected to reach 150 by the end of 2015 and 300 in 2016. The company has also set up an online jewelry sales platform, Golden Cat and Silver Cat-Csmall.com, with 170 brands. The penetration rate of Chinese jewelry e-commerce was only 3.7% in 2015, and there is expected to be room for improvement in the future. The company also has TV shopping, major customer business, Shenzhen Shuibei exhibition hall wholesale business, these three business profits can make up for online business losses. As of 1H2015, the company's O2O business contributed 39% of the company's revenue and 31% of its operating profit.
The acquisition of 100% stake in Huatong Platinum Silver is aimed at laying out the whole silver industry chain.
The company acquired a 25% and 75% stake in Shanghai Huatong Platinum Silver in July and December 2015, respectively, at a total cost of 665 million yuan. The business is expected to contribute 80 million to the company's profits in 2016. Huatong Platinum Silver collects important information about the entire industry chain and is able to provide customers with the best one-stop services, including trade, warehousing, logistics and so on. The acquisition of the exchange will strengthen the company's leading position in the national silver market and implement the long-term strategy of building a leading vertically integrated silver company.
The transformation is still in its infancy and the valuation is relatively reasonable.
The overall positioning of the company's products is fast fashion jewelry, mainly through online shopping malls to offline physical stores, online selling cheap standard goods, and offline mainly expensive non-standard goods. At present, the company does not charge any commission for online third-party brands in the first year, mainly hoping to attract more third-party brands to the company platform. 2014 of the company's internal use of 50 per cent of its silver production rose 89 per cent year-on-year, but the larger upfront investment in the transformed e-commerce platform also led to a 19 per cent and 90 per cent drop in revenue and profits in the first half of 2015. At present, the valuation of the company is 44.9x 2015P/E, 10.9x2016P/E according to market expectation, which is more reasonable.