The Zhitong Finance App learned that Open Source Securities released a research report saying that the main conflict in current investment decisions in the gold and jewelry industry is on the marketing side, so it is necessary to combine price trends and market feedback judgments. The sharp rise in gold prices may continue to inhibit terminal sales; the gold price shock helps consumers gradually absorb wait-and-see sentiment, but it takes time to pay close attention to marginal changes in terminal sales feedback to determine inflection points; furthermore, with the sharp drop in gold prices, consumers' enthusiasm for “buying gold” is expected to resume, boosting industry sentiment. I am optimistic that gold and jewelry brand companies will achieve continuous growth based on “single store sale+number of stores” two-wheel drive, the concentration of industry leaders has increased, and the “steady growth+high dividend” attribute has also become more prominent.

Multiple factors drive the continued rise in gold prices, optimistic about the long-term prosperity of the gold and jewelry industry

Since March 2024, international gold prices have repeatedly reached new highs. In the future, considering factors such as expectations of US interest rate cuts, increased global liquidity, and central banks increasing gold reserves, we will continue to be optimistic about the long-term performance of gold prices. Against the backdrop of rising gold prices in recent years, China's gold consumption has also shown an upward trend in resonance with gold prices. The sharp rise in volume and price supports the growth of the industry. Starting from a medium- to long-term perspective, the “certainty” label for gold preservation and value addition in the public mind is gradually being determined, driving the growth in demand for gold investment; while technological design innovation in gold jewelry combined with the popularity of the “new Chinese” trend, it is also expected that it will continue to stimulate the daily consumer demand for gold. Optimistic about the long-term economic performance of gold and jewelry and investment opportunities for leading brands.

The rapid rise in gold prices in the short term will help brands increase their profitability, but they also need to be wary of “price increase traps”

Gold prices rise rapidly in the short term, and the profitability of brands is expected to first benefit from inventory appreciation: that is, the value of gold inventory (including raw materials and finished products) increases when the price of gold rises and is realized as an increase in gross margin when sales are completed, but the exact extent of benefits also needs to consider differences in procurement models (hedging ratios such as gold leasing) and sales models (wholesale or self-operated retail, etc.). Second, some brands earn the wholesale price difference per gram of gold in the wholesale process according to a fixed rate model, so after the increase in gold prices brings about an increase in the base, they will also increase the corresponding wholesale gross profit amount. Combined with the verification of financial data from some listed companies, it is true that the gross margin performance of some brands in a single quarter showed a clear positive correlation with the month-on-month growth rate of gold prices in that quarter.

Combined with the review of historical data, it was also noticed that on the other side of the increase in profitability, the rapid rise in gold prices can also sometimes lead to a “price increase trap” on the sales side, that is, the sharp rise in gold prices causes consumer hesitation and wait-and-see feelings, which in turn inhibits terminal sales. When this situation occurs, the franchisee process will be damaged first: on the one hand, stores need to increase discounts to boost sales, thereby weakening inventory value-added benefits and intensifying market competition; on the other hand, high gold prices mean higher costs for opening new stores, which also affects the franchisee's willingness and pace to open stores. The impact of these aspects will be further transmitted to the brand side in the future: that is, the franchisee's daily store replenishment, large-scale order delivery, and newly opened store goods will all decline, which in turn will directly affect the revenue performance of listed companies' franchise business.

Target aspects: Focus on recommending Chao Acer (002345.SZ) and Zhou Dasheng (002867.SZ), which are flexible in sales and store opening, as well as Lao Fengxiang (600612.SH) and China Gold (600916.SH), which benefit from rising gold prices and have an advantage in gold investment products. Benefiting targets include Caibai Shares (605599.SH) and Laosou Gold (06181).

Risk warning: Consumption recovery falls short of expectations, market competition intensifies, gold prices fluctuate, and new product launches fall short of expectations.