The high gold price places pressure on demand, can LAOPU GOLD (06181) rely on the concept of "ancient gold" to withstand the lifting of the ban in three months?

Less than three months after its listing, LAOPU GOLD (06181) has experienced another significant increase in its stock price: on September 13, the highest price reached 115 Hong Kong dollars, an astonishing increase of 184% compared to the IPO price of 40.5 Hong Kong dollars. Recently, on the news front, the company released its interim financial report, with both revenue and profits growing rapidly, with net profit increasing by nearly 200% year-on-year; on September 10, the list of stocks eligible for the Hong Kong Stock Connect program was officially adjusted, and LAOPU GOLD was included in the list, with future improvements in liquidity expected to drive further increases in the stock price. Data shows that LAOPU GOLD will experience a wave of lock-up shares being released on December 27, 2024, with a total of 10.8 million shares being unlocked, accounting for 48.28% of the global issuance. According to the company's previous disclosure, as a concerted actor, Xu Gaoming and Xu Dongbo father and son collectively hold 78.27% of the shares of LAOPU GOLD, while Hongqiao Jinqi (Xu Gaoming and Xu Dongbo respectively hold 70% and 30%) holds 45.84% of the shares, and Hongqiao Jinqi, as a general partner, Tianjin Jincheng holds 6.51%. In addition, among the board members, the general manager of the sales department, Xu Rui, and the director of the quality inspection department, Jiang Xia, are Xu Gaoming's nephew and nephew respectively. It can be seen that the company is actually a family business with concentrated ownership in terms of governance structure. Considering the company's current high valuation, there is a certain risk of a downward correction in the stock price as the lock-up period approaches. Mid-term profit surges by 200% to a record high It is understood that LAOPU GOLD, formerly established in 2009, had its "LAOPU GOLD" trademark officially registered in 2014, and is the first brand in China to promote the concept of ancient gold. Positioned as the first professional brand of Chinese ancient handmade gold jewelry, the company's core target customers are high net worth individuals, and all products in the series are made of ancient gold. In the first half of 2024, the company's revenue and profits both grew rapidly, with revenue reaching 3.52 billion yuan and a net profit of 588 million yuan, both recording an increase of 148.34% year-on-year and 198.75% year-on-year respectively. The company mentioned that the increase in revenue and gross profit during the reporting period was mainly due to the expansion of the group's brand influence, which resulted in an increase in store revenue including the overall revenue of Wuxi Online Offline Communication Information Technology Co., Ltd. In the first half of the year, the company's gross profit margin slightly decreased to 41.3%, a decrease of 0.32 percentage points year-on-year. Both the sales expense ratio and the management expense ratio showed significant improvements, with the sales expense ratio at 15.1%, a decrease of 2.5 percentage points year-on-year, and the management expense ratio at 3.5%, a decrease of 1.25 percentage points year-on-year, resulting in a net profit margin of 16.7%, an increase of 2.8 percentage points year-on-year. It is known that all of LAOPU GOLD's stores are directly operated, with store income and average ticket value far exceeding those of their counterparts. Currently, the company's main channels are in high-end shopping centers in first-tier and new first-tier cities. As of the end of June 2024, the company had a total of 33 stores, a net increase of 6 compared to the previous year, covering 14 cities, including 4 stores in the SKP series and 10 stores in the Wanda Plaza series. By channel, in the first half of the year, the company's offline income was approximately 3.13 billion yuan, an increase of 150% year-on-year, while online income was 390 million yuan, an increase of 139% year-on-year, both recording rapid growth. In terms of region, in the first half of the year, mainland China and the Hong Kong, Macao, and Taiwan region achieved revenues of 3.233 billion yuan and 288 million yuan, respectively, representing growth of 138% and 376% year-on-year. According to data from Frost & Sullivan, as of June 30, 2024, LAOPU GOLD ranked first in terms of presence in the top ten high-end department stores nationwide among all gold jewelry brands. Looking ahead, LAOPU GOLD's international strategy is accelerating, with the Southeast Asian market becoming an important direction for the company's future development. According to the company's previous prospectus, within two years after the completion of the IPO, the company will expand into 5 new stores in the Southeast Asian market to create a globally competitive Chinese high-end gold jewelry brand. Gold prices have continued to rise, with noticeable performance differences in the industry chain In the first half of 2024, the price of gold has been rapidly rising, reaching new highs. According to data from the China National Gold Group Gold Jewellery Association, as of the end of June, the London spot gold fixing price was $2,330.90 per ounce, up 12.34% from the beginning of the year at $2,074.90 per ounce. At the end of June, the closing price of Au9999 gold on the Shanghai Gold Exchange was 549.88 yuan per gram, up 14.37% from the opening price of 480.80 yuan per gram at the beginning of the year. Using the closing price of SHFE gold on the Shanghai Gold Exchange as an indicator, the price of gold reached a phase high of 494.80 yuan per gram on March 4, and continued to rise, reaching 581.56 yuan per gram on July 17. Since 2022, the amount of gold purchased by central banks globally has increased significantly, reaching a record high of 1,135.69 tons for the first time. According to statistics from Minsheng Securities, in the first three quarters of 2023, global central bank gold reserves increased by 799.57 tons, a 14% increase compared to the first three quarters of 2022. By December 2023, China's gold reserves had increased to 2,214.55 tons. In response to this, Open Source Securities pointed out that the better-than-expected drop in the US CPI data announced in July has to some extent boosted expectations of interest rate cuts, while geopolitical factors such as Russia-Ukraine, the Middle East, etc., and the continuous accumulation of gold reserves by various central banks, will all provide strong support for gold prices. Under the high price of gold, the performance of listed companies in the gold industry chain has shown a significant divergence. While upstream gold mining has collectively benefited from the rise in gold prices and seen a surge in performance, downstream gold jewelry companies have suffered a significant decline in performance. Data shows that in the first half of 2024, the national gold consumption amounted to 523.753 tons, a decrease of 5.61% year-on-year. The consumption of high-premium gold jewelry was 270.021 tons, a decrease of 26.68% year-on-year; gold bars and coins with relatively low premiums.Consumption volume is 213.635 tons, an increase of 46.02% year-on-year.Specifically, in the first half of the year, CHOW SANG SANG (00116) saw a 13% year-on-year decrease in revenue to HK$11.313 billion, with a significant 36% decrease in net profit to HK$526 million; CHOW TAI FOOK (01929) reported a 20% decrease in overall retail sales in the second quarter, with same-store sales in Mainland China dropping by 26.4%, and in Hong Kong and Macau dropping by 30.8%. The performance of these companies is equally pessimistic. In contrast, LAOPU GOLD is able to achieve "contrarian" growth, perhaps due to its unique positioning as a high-end "ancient gold" brand. Can a high-end ancient gold leader achieve sustainable high growth? It is understood that LAOPU GOLD is the first brand in China to promote the concept of "ancient gold", which refers to pure gold jewelry products that combine modern design with Chinese classical culture and use traditional Chinese handcrafted gold manufacturing techniques. Due to its fine craftsmanship, heavy product texture, and deep cultural heritage, the concept of ancient gold has been popular among many consumers in recent years. Comprehensive jewelry brands such as CHOW TAI FOOK have also introduced ancient gold series products. LAOPU GOLD's brand positioning mainly targets high net worth individuals. According to the Hurun Wealth Report, in 2023, LAOPU GOLD entered the top ten preferred jewelry brands among high net worth individuals in China for the first time, becoming the second Chinese National Gold Group Gold Jewellery brand to make the list after CHOW TAI FOOK. Unlike mainstream gold jewelry brands that price by weight, all of LAOPU GOLD's products are priced per piece, with pricing logic similar to luxury jewelry. It is disclosed that all of LAOPU GOLD's products are independently designed and developed. Since 2021, the company has maintained an iterative process of over a hundred products each year and a frequency of over a hundred new products, contributing stably to high single-digit revenue shares from 2021 to 2023. By the end of the reporting period, the company had created over 1,800 original designs, had 243 domestic patents, 1,207 copyrights on works, and 164 overseas patents. In terms of product breakdown, in the first half of the year, the company achieved revenues of 1.372 billion and 2.147 billion respectively from foot gold and foot gold inlay products, representing a 110% and 182% year-on-year growth. Foot gold inlay products targeted at young people accounted for 61% of total revenue, an increase of 7 percentage points year-on-year. In recent years, with the popularity of "national trend" among young people, the rich traditional cultural connotations and auspicious meanings of ancient gold have also attracted more young consumers. It is understood that LAOPU GOLD's product range is wide, offering both daily wear accessories and cultural relics, as well as daily use golden items, covering a wide range of consumer groups of different ages and needs. By the end of the reporting period, the number of loyal members of the company has reached 275,000, with a growing consumer base. Data from the China Industrial Research Institute shows that from 2018 to 2023, the market size of ancient gold jewelry in China has grown rapidly from 13 billion yuan to 157.3 billion yuan, with a compound growth rate of 64.6%. It is expected that the market size will reach 219.3 billion yuan in 2024 and 421.4 billion yuan in 2028. It can be seen that LAOPU GOLD's brand positioning is more like a luxury brand, blurring the distinction between gold jewelry and luxury goods, mainly focusing on high net worth customers who are not sensitive to prices. Moreover, the pricing per piece model has reduced the negative impact of high gold prices, allowing the brand to earn more brand premium in the gold jewelry race. However, LAOPU GOLD also faces challenges. Data shows that currently LAOPU GOLD's market share is not high, ranking seventh in the ancient gold jewelry market in terms of revenue in 2023, with a market share of 2%, while the top 5 ancient gold jewelry brands occupy 46.1% of the market. Looking at the entire gold jewelry market, LAOPU GOLD's market share is only 0.6%. As of the end of June 2024, LAOPU GOLD has a total of 33 stores, while Chow Tai Seng Jewellery and Zhouqufeng have over 4,000 stores, CHOW TAI FOOK Jewelry Group has nearly 8,000 stores, and Lao Feng Xiang has about 6,000 stores. Although the company currently has a first-mover advantage in the field of ancient gold, with other gold brands also launching ancient gold products, the increasingly fierce competition may lead to market homogenization, low profit margins, and price wars, putting LAOPU GOLD's design, processing, and brand marketing capabilities to the test.