UBS: Expecting domestic adjustment of gold value-added tax to put short-term demand under pressure, long-term promoting consolidation of the jewelry retail industry.

UBS released a research report saying that China adjusted its policy on VAT deduction for gold, aiming to centralize the supervision of investment product demand. The decrease in liquidity may prompt some demand to shift towards gold ETFs. As for the jewelry consumption sector, the bank believes that whether through direct sales or franchise channels, the additional 7% tax will be passed on to consumers. The bank believes that the increase in VAT will put pressure on the demand for gold products in the short term, and reduce the arbitrage space between investment and non-investment demand, such as processing gold bars into jewelry. With the strengthening of regulatory reviews, the market will further consolidate, and consumers may shift from small shops to large brands. The bank pointed out that the short-term demand for LAOPU GOLD (06181) and CHOW TAI FOOK (01929) may face pressure, but in the long term, both are expected to further integrate into the market. Assuming a decrease in the VAT rebate rate from 13% to 6%, it is estimated that the gross profit margin of LAOPU GOLD will face a pressure of 3 to 4 percentage points. However, the company raised prices by about 20% at the end of last month, which may offset some of the impact. On the other hand, CHOW TAI FOOK recently raised the prices of its gold products by 5%, passing on the pressure of the gross profit margin to consumers.