Citibank: The price increase of LAOPU GOLD (06181) has limited impact on sales. Target price is HK$1,119.

Citibank released a research report stating that according to its industry survey, LAOPU GOLD (06181) raised prices by an average of 27% last Saturday (28th), with most products seeing a price increase of 25% to 35%, marking the largest increase in history. The significant price increase is believed to be mainly driven by the rise in gold prices, as well as the management's intention to maintain a gross margin of over 40% and consolidate its positioning as a high-end brand. Citibank has given a "buy" rating to LAOPU GOLD, with a target price of HK $1,119, and expects strong profit prospects supported by robust same-store sales growth, new store openings, and operational leverage. Citibank stated that although the price hike by LAOPU GOLD may slow down demand from price-sensitive customers, it is expected that competitors in the industry will follow suit in March. In addition, with the promotion activities of the Women's Day on Tmall in March and the anniversary celebration of SKP Department Store in April, it is anticipated that the sales pressure on LAOPU GOLD will be alleviated and demand will gradually recover over the next month. According to Citibank's estimation, the average price per gram of LAOPU GOLD products has reached 2,512 RMB, which would be 2,260 RMB considering a 10% discount. Calculated based on the current gold price of 1,145 RMB per gram, and considering a 6% deduction rate for value-added tax and other production costs, it is expected that the gross margin of LAOPU GOLD will rebound to 49% from the marked price, and to 43% after deducting the 10% discount. LAOPU GOLD is Citibank's top pick in the Chinese jewelry sector.