Preview of new stocks on the US stock market | Wanbang Jewelry: Revenue increases + Gross profit margin decreases, unable to stop the "butterfly effect" caused by the rise in gold

When it comes to jewelry, especially gemstones, the first thing that comes to mind is preservation and appreciation, which has become the main reason why many people love to buy jewelry. The jewelry market in China has been appreciating. According to a report released by the Zhongyan PwC Industry Institute, the size of the Chinese jewelry market has jumped from 580 billion yuan in 2018 to 820 billion yuan in 2023, with a compound annual growth rate of 7.2%. By 2024, the industry market size is expected to exceed 920.1 billion yuan. Recently, Ming Fung Jewelry from Hong Kong publicly submitted its prospectus to the US SEC for a listing in the US on the Nasdaq under the stock code MPJS. They plan to issue 1.5 million common shares, accounting for 5% of the total after issuance, with an issue price of 4-5 US dollars. In addition, existing shareholders plan to sell 1.3 million shares, with an expected market value of $130 million. It is worth noting that as early as 2019, Ming Fung Jewelry had submitted a prospectus to the Hong Kong Stock Exchange for listing on the GEM board. Revenue from gold products nearly doubled But gross profit margin declined significantly According to the prospectus, Ming Fung Jewelry was established in 2010 as a jewelry retailer and wholesaler based in Hong Kong. In 2010, its first retail store opened, starting its jewelry retail business. Currently, Ming Fung Jewelry has 5 retail stores in Hong Kong, mainly targeting the mid-range market and catering to mid-income customers. Its products include mid-range gemstone-inlaid jewelry, gold jewelry, loose diamonds and gemstones, gold jewelry, and silver jewelry. In terms of performance, for the fiscal years 2023-2024 (ending on October 31) (referred to as the reporting period below), Ming Fung Jewelry's revenue was 66.42 million Hong Kong dollars (HKD) and 109 million HKD, respectively. Net profits were 5.05 million HKD and 5.98 million HKD, respectively. By business segment, revenues from Pure gold products were 45.1856 million HKD and 80.027 million HKD; diamond jewelry revenues were 12.6705 million HKD and 12.4526 million HKD; and revenues from selling recycled gold were 5.6314 million HKD and 11.5246 million HKD, etc. In short, the company's main product is gold products, and the significant growth in revenue from gold products has driven the overall revenue growth of the company. It is well known that the price of gold has skyrocketed this year. The price of gold has entered the era of "3000 US dollars", with international spot gold prices reaching a historical high of 3500.16 US dollars per ounce on April 22. One phenomenon worth noting is that although the price of gold has risen, sales have not been optimistic. Data from the China National Gold Group Gold Jewellery Association shows that in 2024, the total consumption of gold jewelry in China was 985.31 tons, a 9.58% decrease compared to the previous year. Among them, gold jewelry consumption was 532.02 tons, a 24.69% decrease. In fact, the continuous rise in gold prices has led to a cooling of consumption, leading to a difficult situation for most gold jewelry brands in the market. On March 25, CHOW SANG SANG (00116) released its latest financial report. In 2024, CHOW SANG SANG recorded a turnover of 21.176 billion Hong Kong dollars, a 15% year-on-year decrease; the owner's profit attributable to shareholders was 806 million Hong Kong dollars, a 20% year-on-year decrease; and the net decrease in stores was 74. Similarly, the sharp rise in gold prices has affected the gross profit margin of Ming Fung Jewelry. During the period, the company's gross profit margins were 25.70% and 18.94%, respectively. The company stated that the decline in gross margin in 2024 was mainly due to the drop in the gross margin of pure gold products from 16.68% to 11.55%. According to the Zhitong APP, gold is one of the main raw materials for the company's gold jewelry, gold jewelry, and diamond-inlaid jewelry. Therefore, any fluctuation in prices of gold and other raw materials will have a significant impact on its business and profitability. The cost of purchasing pure gold for the company during the period was 37.6498 million HKD and 70.7796 million HKD, accounting for 52.55% and 63.21% of total income, respectively. If the price of gold fluctuates sharply, it will further increase the risk of business fluctuations for the company. Furthermore, as of October 31, 2024, the company's operating cash flow was negative, at -15.83 million HKD. Behind this "bleeding," Ming Fung Jewelry has had to rely on external financing to support the company's business expansion, with total bank borrowings of 233.789 million HKD and 182.215 million HKD during the period. If there is operating losses or continued negative cash flow in the future, it may further lead to increased liquidity risks. Fluctuations in the gold market May hinder brands from "making money" Gold products are the key products of Ming Fung Jewelry, and fluctuations in the price of gold will have a huge impact on the company's business growth. Major institutions are optimistic about the trend of gold prices in 2025. Goldman Sachs has raised its target price for gold at the end of 2025 from $3300 per ounce to $3700 per ounce, and believes that in extreme cases, such as a deep recession in the US economy, the price of gold could reach $4500 per ounce. JPMorgan Chase expects the price of gold in the fourth quarter of 2025 to be close to $3,675 per ounce, and believes that by the second quarter of 2026, the price of gold could surpass $4,000. UBS expects the average price of gold in the third quarter of 2025 to reach $3,500 per ounce, and if geopolitical risks or inflation pressures intensify, the price of gold could exceed $3,800. In fact, the sharp rise in the price of gold has led to an...For the brand, this may not necessarily be a good thing. For example, with international gold prices at a high level, brands as suppliers of gold jewelry have little pricing power and only charge a fixed cost. Therefore, for brands, costs are beyond control.Furthermore, the purchasing preferences and channels of the consumer group in the gold market have changed. For example, an increasing number of young consumers are buying gold jewelry for themselves to wear, rather than for gifting, holidays, weddings, and other specific occasions. Therefore, they value quality and price ratio. These factors all impact brand profitability. This is also true for the Wanbang Jewelry brand. Moreover, in terms of competitive landscape, the Hong Kong jewelry market is mature and stable, with a high industry concentration. A few large jewelry retailers and international brands have a market share of over 60%. As a local jewelry retailer, Wanbang Jewelry has some customer recognition, but faces significant pressure in this leading market. Especially since the jewelry industry is a high capital asset industry, expansion is not an easy task, posing a higher test for the company's cash flow and operational stability.