The Zhitong Finance App learned that Changjiang Securities released a research report saying that historically, the correlation between gold prices and annual sales of gold jewelry was weak, and gold prices were more biased towards affecting the short-term pace of consumption. After the sharp rise in gold prices slowed down for a period of time, sales all showed a compensatory increase. This round of sharp increases in gold prices occurred during the industry's low season, and it has been fluctuating at a high level for more than two months. If gold prices continue to fluctuate in a narrow range, the peak season of the industry in the second half of the year is expected to drive demand recovery. In the medium to long term, innovations in gold preservation attributes and stacking technology have broadened personalized scenarios such as happy gifts, etc., and industry demand is still resilient; leading brands are expected to further optimize the pattern through channel and product upgrades. At the same time, the proportion of high-wage gold jewelry will increase, enhance the profitability of gold products and strengthen the profit stability of enterprises and franchisees.

On the target side, there have been many pullbacks in the jewelry sector recently, and the undervaluation+high dividend attributes of leading companies have become more prominent. Key recommendations: Lao Fengxiang (600612.SH), Zhou Dasheng (002867.SZ), and Caibai Co., Ltd. (605599.SH). It is recommended to focus on: Zhou Daifu (01929) and Chao Hongji (002345.SZ).

The main views of Changjiang Securities are as follows:

Gold prices fluctuate at a high level, and demand is expected to make up

In 2015-2023, gold prices rose sharply, while domestic gold jewelry consumption fluctuated between 650-750 tons, and global gold jewelry consumption fluctuated around 2,100 tons, all showing strong resilience. The underlying reason is that the long-term rise in gold prices has consolidated consumers' psychological expectations of wealth effects, thus offsetting the optional attributes of the jewelry category to a certain extent. The short-term sharp rise in gold prices greatly disrupts the quarterly and monthly consumption pace, but after the increase in gold prices slows down, planned consumers are expected to adapt more quickly to the new prices and take the lead in restarting purchases, narrowing the sales decline and driving the sales growth rate to correct. Sales are expected to later usher in compensatory growth.

The second half of the year is relatively high season, and replenishment is worth paying attention to

Jewelry consumption is clearly seasonal. January-February New Year's Day and Spring Festival focus on diverse consumption scenarios such as party gifts, Chinese zodiac gifts, and self-rewards, and merchants are heavily promoted; the second half of the year focuses on important festivals such as Tanabata, Mid-Autumn Festival, National Day, and Christmas, so overall, jewelry consumption is concentrated from August to February of the following year. This round of sharp increases in gold prices occurred from late March to early May. In the low season, consumers may have more time to adjust to gold prices, and consumption recovery in the second half of the year is still worth looking forward to.

The pace of opening a store is steady, and the budget is not necessarily rigid

On the supply side, in line with peak season consumption, net store openings in the second half of the year accounted for 6-70% of the year. At the same time, since brands and dealers can provide franchisees with payment periods, site selection and decoration services, sales subsidies, etc., to support store expansion and smooth the impact on gold prices, the sharp rise in gold prices in history has not significantly dragged down the pace of store expansion.

On the demand side, in the context of the current weak economic climate, savings rates have increased, and consumption intentions or phases have declined; on the other hand, historically, the unit price of Chow Tai Fu gold jewelry has increased with the price of gold, and the share of gold jewelry in the industry is relatively stable. There is no obvious “small gram weight” trend, or due to the value preservation properties of gold, consumers are more receptive to the increase in the purchase cost of a single gram. Coupled with product upgrades, consumer budgets may have some room for adjustment.

Risk warning: Residents' income recovery fell short of expectations, and consumer spending was weak; gold prices surged further in the second half of the year; increased competition in the industry disrupted the pattern to a certain extent.