Yamato: The new value-added tax policy may temporarily benefit gold stocks, with a preference for LAOPU GOLD (06181) in the short term.

Daiwa Research released a report stating that the Chinese Ministry of Finance recently announced a new policy that will lower the value-added tax deduction for jewelry retailers from 13% to 6%, increasing the cost of gold purchases by about 7%. This policy will take effect from November 1, 2025 and end on December 31, 2027. Daiwa believes that LAOPU GOLD (06181) and CHOW TAI FOOK (01929) will ultimately pass on these costs to consumers, and the bank is not worried about the long-term impact of the policy on the gross profit margin of jewelry stocks. Daiwa believes that this policy may trigger an early purchase rush for price-adjusted products before the expected price increase. However, Daiwa believes that this news will dampen the short-term sentiment of gold and jewelry stocks, especially since international gold prices have fallen from their peak recently, which Daiwa sees as a healthy adjustment. Daiwa states that companies with a higher proportion of products priced by weight will feel a more urgent need to pass on the price pressure, as the profit margins of these products are usually lower. For example, CHOW TAI FOOK's approximately 80% of gold jewelry sales still use a weight-based pricing model, and Daiwa expects that the full pass-on will eventually be achieved. Daiwa also sees secondary benefits from this policy, as sales in the Hong Kong and Macau markets (accounting for 13% of sales) may be stronger, as these markets are not affected by the policy. Regarding LAOPU GOLD, given its significant price increase on October 26, Daiwa believes that this price increase has exceeded the recent rise in gold prices, so the immediate profit margin risk is lower. Daiwa also believes that industry-wide price adjustments for products priced by weight should make LAOPU GOLD's products relatively more attractive, potentially prompting consumers to purchase gold jewelry early. Daiwa thinks that the likelihood of another price increase for LAOPU GOLD before 2026 is low, as the company has already raised prices three times this year. Daiwa maintains a "buy" rating on LAOPU GOLD and CHOW TAI FOOK, but prefers LAOPU GOLD in the short term as the company has recently raised prices and has a higher proportion of price-adjusted products in sales. Despite this policy change, Daiwa believes that sales for the fourth quarter of 2025 for LAOPU GOLD and CHOW TAI FOOK may still exceed expectations.