New stock preview | 1.6 billion repurchase against the top, can Zhou Shufu switch to Hong Kong stocks survive the disaster?

On February 28, Saturday, Chow Tai Fook Jewellery Group Limited (hereinafter referred to as Chow Tai Fook) submitted an application for listing on the main board of the Hong Kong Stock Exchange, with CICC and China Securities Co., Ltd. International as its joint sponsors. It is worth mentioning that this is Chow Tai Fook's second time submitting an application to the Hong Kong Stock Exchange. Prior to this, Chow Tai Fook had made three unsuccessful attempts to list on the A-share market, meaning that this is Chow Tai Fook's fifth attempt at an IPO. "Repeated battles, repeated defeats, repeated defeats and repeated battles,". Chow Tai Fook's IPO road can be described as difficult, so why is Chow Tai Fook so persistent in pursuing an IPO? A rocky capital history It is understood that Chow Tai Fook was established in 2004 as a Chinese jewelry company, providing various jewelry products through offline stores and online sales channels. Its business model integrates jewelry product development, design, procurement, franchise, and brand operation, founded by the Li brothers, Li Weizhu and Li Weipeng. Although its brand name is reminiscent of well-known jewelry companies such as CHOW TAI FOOK and CHOW SANG SANG, the actual controlling family is not the Zhou family, but the Li family, so Chow Tai Fook's naming is considered to leverage the reputation of the industry's leading brands. Since its establishment, Chow Tai Fook's capital road has not been smooth. According to the prospectus, since its establishment, Chow Tai Fook has carried out two rounds of financing. In 2018, Shenzhen Yongcheng Capital, Daoyang Junrui, and Jiaqiao Capital subscribed for 35 million yuan, 27.64 million yuan, and 30 million yuan, respectively, for Chow Tai Fook's registered capital of 1.272 million yuan, 1.0045 million yuan, and 3.0315 million yuan. In November 2020, Chow Tai Fook received investment from Huatuo Capital. Since 2019, Chow Tai Fook has embarked on the path to IPO. However, multiple attempts to list on the A-share market have ended in failure. Specifically, in May 2019, Chow Tai Fook first sought to list on the Shenzhen main board, but the IPO project was suspended due to both the sponsoring institution and the auditing firm being involved in the "Kangmei case". When applying for IPO for the first time in 2019, the CSRC's review committee queried Chow Tai Fook on issues such as the revenue ratio of the franchise model exceeding 80%, multiple trademark disputes, and large and rapidly growing inventory. After changing sponsoring institutions, Chow Tai Fook's initial public offering was not approved at the review committee meeting in October 2020. In March 2021, the Shenzhen Securities Regulatory Bureau website disclosed that Chow Tai Fook received guidance from China Securities Co., Ltd. and underwent guidance filing at the Shenzhen Securities Regulatory Bureau. Acceptance of the materials was received by the CSRC on June 20, 2022, and the application was accepted on June 22. In July 2022, Chow Tai Fook again disclosed its prospectus and applied to list on the Shenzhen Stock Exchange main board. After several failed attempts to list on the A-share market, the company triggered a performance guarantee agreement. According to the prospectus, in December 2021, Yongcheng Er Hao, Jinyufuyuan, Jiaqiao Hel, Xu Bo, Huatuo Zhiyu, and Mingyang Investment re-signed the "Supplementary Agreement to the Equity Transfer Agreement" with the actual controller Li Weizhu. The performance guarantee agreement includes a related buyback clause, which stipulates that if the issuer fails to list by June 30, 2024, the actual controller Li Weizhu must repurchase the shares. Starting on November 22, 2023, Li Weizhu repurchased shares through six transactions, spending approximately 160 million yuan. In November 2023, Chow Tai Fook voluntarily withdrew its third A-share IPO application and instead set its sights on the Hong Kong stock market. In June 2024, Chow Tai Fook submitted an application to the Hong Kong Stock Exchange for the first time, but the prospectus became invalid, so it filed another application in February of this year. Of note, in the three months leading up to the first submission to the Hong Kong stock exchange in 2024, Chow Tai Fook declared dividends twice, totaling 645 million yuan, while the company's net profit for the entire year of 2023 was only 660 million yuan. This means that almost all of the profits in the past year have ended up in the hands of the Li brothers. It can be said that Chow Tai Fook's journey in the capital market is full of challenges. In addition to the long road to listing, the fundamentals of Chow Tai Fook also do not withstand scrutiny. High gold prices weigh on performance, high ratio of franchisees criticized Since the beginning of 2025, the international price of gold has risen by more than 10% cumulatively. Looking at a longer period, since 2024, the price of gold has risen by over 42%. Compared to the "buying gold fever" of global central banks, the continuous rise in gold prices has dampened consumers' enthusiasm for buying gold. According to a report by Beijing Business Daily, data from the World Gold Council shows that global gold jewelry consumption in 2024 decreased by 11% year-on-year, with the Chinese market's gold jewelry consumption in 2024 dropping by 24% year-on-year, a decrease of 151 tons. The decline in gold jewelry consumption has inadvertently increased the survival pressure on gold stores. On December 3, 2024, CHOW TAI FOOK released its mid-year report for the 2025 fiscal year. The data shows that in the first half of the 2025 fiscal year, CHOW TAI FOOK's revenue decreased by 20.4% year-on-year to HK$39.408 billion. According to official CHOW TAI FOOK data, as of the end of 2023, CHOW TAI FOOK had a total of 7,655 stores worldwide. In China's mainland, the number of CHOW TAI FOOK jewelry brand stores was 7,519. By the end of December 2024, the total number of CHOW TAI FOOK stores worldwide had decreased to 7,065, nearly 600 stores closed within a year. In addition to poor performance by CHOW TAI FOOK, other top jewelry companies such as CHOW SANG SANG, Lao Feng Xiang, and LUK FOOK HOLD have also had a tough time. Wind data shows that CHOW SANG SANG had sales revenue of 10.8 billion yuan in the first three quarters of 2024, a year-on-year decrease of 13.5%; net profit attributable to owners was 855 million yuan, a year-on-year decrease of 21.95%. Lao Feng Xiang had revenue of 52.582 billion yuan in the first three quarters of 2024, a year-on-year decrease of 15.28%; net profit attributable to owners was 1.776 billion yuan, a year-on-year decrease of 9.6%. LUK FOOK HOLD had sales revenue of HK$5.449 billion from April to September 2024, a year-on-year decrease of 27%; operatingProfit was HK$536 million, a decrease of 53% year-on-year.It can be seen that the high price of gold has a deep impact on the performance of gold and jewelry stores. As one of the gold and jewelry stores, Lao Feng Xiang's performance will also be significantly affected. On one hand, it is related to the adjustment of product structure, and on the other hand, it is related to the number of stores. Looking at the product structure, the proportion of gold and jewelry in Lao Feng Xiang's operating income in 2022 to 2024 is 53.4%, 71.4%, and 76.5% respectively, showing an increasing trend year by year. The company's prospectus shows that gold needs to refer to the price of the Shanghai Gold Exchange on the day, and compared to the price of gold, diamond prices usually do not have a widely accepted benchmark or market standard, so there is greater flexibility in determining the profit margin of diamond-set jewelry. Due to price transparency, both franchise stores and self-operated stores, offline stores, the gross profit margin of gold and jewelry is lower than that of diamond-set jewelry. In the franchise model, the gross profit margin of gold and jewelry is only 3.2% in 2022, 3.8% in 2023, and slightly increased to 6.0% in 2024, compared to the gross profit margin of diamond-set jewelry in the past three years, which is 16.2%, 15%, and 22.2%. Looking at the number of stores, due to the rise in gold prices, the difficulty of inventory for franchisees has increased, and the gold consumption market is in a declining trend, so the number of franchise stores for Lao Feng Xiang in 2024 has decreased rather than increased. According to Frost & Sullivan data, in terms of the number of stores in China, Lao Feng Xiang has maintained its position among the top five brands in the Chinese jewelry market for seven consecutive years from 2017 to 2023. As of December 31, 2022, 2023, and 2024, the company had 3974, 4288, and 4038 franchise stores. The franchise model is the main business model of Lao Feng Xiang, with franchise stores accounting for over 95% of the total number of stores. The decrease in the number of franchise stores indirectly resulted in no growth in service fee income. Taking these two main reasons into account, the gross profit margin of the company's franchise store business decreased from 51.8% in 2022 to 33.7%. Although the gross profit margin of self-operated stores is higher, the number of self-operated stores is not high. According to the prospectus, as of December 31, 2022, 2023, and 2024, the company had 78, 95, and 91 self-operated stores in China. Online sales has become a new growth point for Lao Feng Xiang and has already reached a certain scale. The compound annual growth rate of online sales revenue from 2022 to 2024 reached 46.1%, and online sales revenue accounted for 40.0% of total revenue in 2024. However, Lao Feng Xiang has been criticized in the market for the ongoing trademark disputes and legal issues related to intellectual property. According to disclosures, Lao Feng Xiang and other companies have been involved in 825 judicial cases, with 67.52% of the cases involving trademark disputes. In its Hong Kong IPO prospectus, Lao Feng Xiang stated, "In the past, we and some franchisees have received notices from certain intellectual property owners, claiming that their trademarks or designs may have been infringed. For the historical periods and up to the last practicable date, we did not involve any significant disputes related to infringement of third-party intellectual property rights that could have a significant impact on our business, financial performance or operating results. However, we cannot guarantee that we will not be threatened or sued for alleged infringement of intellectual property rights by others in the future. If such disputes arise, whether or not they have merit, they may require a significant amount of time and money to defend, and may result in litigation, diverting management attention and resources." In conclusion, Lao Feng Xiang's IPO journey is like a marathon, reflecting the collision between the ambition of enterprise expansion and the reality of the market. Although the rapid expansion through the franchise model, the low profit margin and high risk of disputes brought about by over-reliance on this model, combined with the suppression of consumer demand by high gold prices, have put pressure on its performance. Moving to the Hong Kong stock market is a last resort, but it also demonstrates the determination of the company to seek capital breakthroughs. However, issues such as special dividends and trademark disputes still hang over the company, testing investor confidence. In the future, finding a balance between franchising and self-operated, gold and diamond-set products may be the key to Lao Feng Xiang's breakthrough. The story of the capital market is still unfolding, and whether Lao Feng Xiang can truly "gild" success remains to be tested over time.