Incident: The company released its 2023 performance forecast, achieving net profit attributable to mother of 67-735 million yuan, an increase of 46%-60%, and net profit without deduction of 621-686 million yuan, an increase of 53%-69%. Corresponds to 2023Q4 net profit of 0.786-143.6 million yuan, -24% to +39% year-on-year, net profit of 0.794-144.4 million yuan after deducting non-return to mother, -3% to +76% year-on-year.

Comment:

We expect 23Q4 terminal sales to continue to be booming, and product structure & gold prices may fluctuate, and gross margin will be slightly pressured. We maintain an estimate of the company's revenue for the full year of 2023 at 16.76 billion yuan, which corresponds to 2023Q4 revenue of 4.39 billion yuan, an increase of 78%. The corresponding 2023Q4 net interest rate range is 1.8%-3.3%, down from the previous three quarters. We expect that the spot price of gold on the Shanghai Gold Exchange will fall rapidly in a short period of time at the end of September 2023. The closing price of Au9995 will drop from 474.95 yuan/gram on September 25 to 448 yuan/gram on September 28, and remained relatively low until mid-October. National Day is the peak season for jewelry sales, and the inventory cost of some of the company's gold products is high, causing gross margin pressure; 2) Judging from the trend since 2023Q3, the performance of gold bars may be better than gold jewelry. As a result, gross margin fluctuated in 2023Q4.

We expect to open 15 net stores in 2023. 23Q3 opened 7 new direct-run stores, distributed in Beijing, Tianjin, Hebei and Shaanxi; closed 1 store in Shaanxi Province, for a total of 6 stores. 23Q1-3 has opened 10 net stores and has 80 stores as of 2023.9.30. The company plans to open 2 new stores in Hebei Province in 23Q4 and 1 new store in Shaanxi Province in 24Q2.

Profit forecast: We maintain our previous forecast for the company's revenue side of 16.76 billion yuan/yoy +52.5%. In 24-25, assuming flat head office revenue & 15 net stores per year & low single-digit growth in the same stores other than the main store, e-commerce will maintain a double-digit growth rate, corresponding to the 24-25 revenue growth rate of 14%/13%, respectively. The net profit for 23-25 is expected to be 7.12/8.14/913 million yuan, an increase of 55%/14%/12% over the same period, corresponding to the closing price PE 15/13/12X on January 26. Assuming a dividend payout rate of 70% in 2023, the current dividend rate is 4.7%.

Risk factors: Gold prices fluctuate sharply, store expansion falls short of expectations, e-commerce profitability falls short of expectations.