When growth progresses briskly, jewelry leadership takes a new journey. Chow Tai Sang is a high-end national jewelry brand founded in 1999. Its products are “gold as the main force, diamond as the advantage”, and it has five major sub-brands including Chow Tai Sang, Chow Tai Sang Classic, and BLOVE. By the end of 2023, Chow Tai Sang had more than 5,000 offline stores nationwide, and was awarded the “China 500 Most Valuable Brands” by the World Brand Laboratory for 13 consecutive years. Currently, it is ranked second in China's light industry and the number one jewelry brand in mainland China. Benefiting from the boom in the industry in 2023, the company achieved revenue of 16.3 billion yuan and net profit to mother of 1.32 billion yuan, an increase of 46.5%/20.7% over the previous year.
Make good use of marketing ingenuity, and national brands get out of the market first. 1) Product strength is reflected in keeping up with market trends with a light and flexible approach. Early on, it broke the circle with differences in diamond inlay categories. In recent years, the product strategy was adjusted in favor of the gold category, and new categories such as the National Treasure Series and the Monet Co-branded Series were launched to effectively optimize the category structure, enhance profitability, and once again meet demand dividends. 2) Behind the brand power is the resonance between channels and marketing. Chow Tai Sang relied on the first-mover advantage of third- and fourth-tier channels to quickly seize brand dividends, and then enhance brand power through channel scale and refined operation. Since 2019, the average annual sales cost has been close to 700 million yuan, and a closed loop of sales and efficient transformation has been established. During the 2023 Double Eleven period, the brand's online omni-channel GMV exceeded 1.38 billion yuan, ranking 1/2/3 in Taobao/Douying/JD gold category sales.
The channel layout is “1+N+ online”, and multi-dimensional support for participating exhibitors. Channel power is reflected in the continuous encryption of offline outlets and the rapid growth of online retail sales. 1) Direct management system: continuous verification of brand vitality. Offline self-operated stores are highly standardized, setting a brand benchmark. By 2023, the revenue of offline self-operated stores increased by 51% to 1.62 billion yuan, with an average revenue of 5.58 million yuan, an increase of 23.6%. Most of the leading direct stores can have an efficiency of about 200,000 yuan/square meter; online channels boost e-commerce such as Tmall, with revenue of 2.51 billion yuan in 2023, an increase of 62.3%; 2) Franchise system: Since the introduction of a provincial franchise system in 2021, the front-end allows traders to directly purchase gold jewelry distribution from suppliers and omit intermediary distribution channels The price increase process; The middle end provides small loan finance and supply chain services to help exhibition stores, and the back end assists with store distribution models and cloud store shopping guides. Driven by high profit margins, the number of franchised stores had reached 4,775 by the end of 2023, with an average gross profit of 400,000 yuan per store in 2023, an increase of 17.4%.
Profit forecast and investment advice: Chow Tai Sang is a leading gold and jewelry brand. The promotion of new products and processes has effectively accelerated the transformation and upgrading of channel brands to product brands. Channel innovation and the introduction of provincial generation systems are expected to further integrate high-quality regional resources and unleash growth flexibility. We expect the company's revenue for 2024-2026 to be 19.6.3/229.0/25.95 billion yuan, respectively, with year-on-year growth rates of 20%/17%/13%, respectively, and net profit to mother of 15.3/17.2/1.93 billion yuan, up 16%/12% year on year, corresponding to 12 times PE in 2024. Compared with the peer valuation level, there is still room for improvement under the support of brand power, and covered and given a “buy” rating for the first time.
Risk warning: consumption falls short of expectations, channel expansion is blocked, franchisee management is poor