Zhongtong Finance learned that Guosheng Securities released a research report pointing out that looking forward to the second half of the year, under the current global economic and political volatility, the high-level volatility trend of gold prices is highly certain. Reflected on the demand side, when consumers form expectations of gold price volatility, rigid jewelry demand is expected to be released, thereby improving terminal consumption compared to the first half of the year. From the company level, it is expected that in the face of a volatile consumption environment in 2024, each targeted company will gradually slow down its annual store expansion plan. At the same time, facing fierce market competition, brand companies may further increase their product research and development efforts to enhance product differentiation and market competitiveness. Recommended targets: Lao Feng Xiang (600612.SH), Chow Tai Sang Jewellery (002867.SZ), Guangdong CHJ Industry (002345.SZ), and Lao Pu Gold (06181).

Zhongsheng Securities' main points are as follows:

Short-term analysis: As gold prices remain high and consumption environment is volatile, short-term consumer demand for jewelries is weak, and the performance of listed companies is under pressure.

In March to mid-April 2024, the domestic gold price surged rapidly. According to Wind data, the price of Shanghai Gold Exchange Au9999 rose by nearly 10% in March alone. After mid-to-late April, the gold price presented a high-level volatile trend. The short-term high gold price and volatile consumption environment have impacted residents' jewelry consumption. In April/May/June, the year-on-year growth rates of retail sales of gold and silver jewelry were -0.1%/-11%/-3.7%, respectively. Reflected on the listed companies level, the total revenue of key gold and jewelry companies in 2024 Q1 increased by 11.3% YoY to RMB 57.56 billion, and their performance increased by 9.9% YoY to RMB 1.94 billion. Since Q2, the overall terminal demand is still relatively weak, and brand companies' direct sales and franchise shipments are under pressure.

Demand trend analysis: Gold products occupy the dominant position in China's jewelry demand, and the long-term market scale is expected to continue to expand.

From a long-term perspective, beyond the wedding market, jewelry consumption represented by the demand for self-indulgence and socialization is on the rise, driving the expansion of the market scale. In this process, benefiting from the expectation of rising gold prices, continuous upgrading of product design, and the hedge and value preservation properties of gold products unique to the volatile environment, the domestic gold product market size continues to expand. According to Lao Pu Gold's prospectus, the compound annual growth rate of the domestic gold product market size from 2023 to 2028 will reach 9.4%, among which the compound annual growth rate of gold product consumption is 4.9%.

Operation trend analysis: Brand companies attach importance to product upgrading and optimize channel operation efficiency at the same time.

Product end: Under the good environment of gold sales, it is expected that jewelry companies will continue to enhance their gold product development capabilities to adapt to consumer demand, and improve product and brand differentiation by creating unique IPs and developing jewelry with national features. In this process, leading companies are more likely to gain differentiated competitive advantages due to their sufficient design resources.

Channel end: On the one hand, it is expected that brand companies will improve the operational efficiency of e-commerce and increase their layout on emerging platforms in response to trends in consumer demand changes, and the proportion of the long-term e-commerce business of brand companies still has room for improvement. On the other hand, after years of rapidly expanding stores, the number of offline stores of leading companies is already large. As of the end of 2023, the number of Chow Tai Sang Jewellery, Lao Feng Xiang, and China National Gold stores was 5106, 5994, and 4257 respectively. By the end of FY2024, the number of Chow Tai Fook Jewelry stores will reach 7,548. Then, it will continue to increase the coverage in weak areas while improving the coverage density in core areas.

Valuation analysis and investment recommendations: Short-term performance pressures of targeted companies may be relatively large. From a long-term perspective, leading gold and jewelry companies will still achieve share increases through channel optimization and expanding e-commerce businesses. At the same time, the basis for competition is established through enhancing product differentiation. It is recommended to focus on leading companies with optimized channels and strong brand power, and their performance growth stability is expected to lead the industry. Focus on Lao Feng Xiang (600612.SH), Chow Tai Sang Jewellery (002867.SZ), Guangdong CHJ Industry (002345.SZ), and Lao Pu Gold (06181). The current stock prices correspond to 2024 PE multiples of 11/9/10/15 times.

Risk reminders: risks of volatile consumption environment and gold price fluctuations, risks of intensified market competition, risks of unanticipated construction of e-commerce businesses, risks of unexpected decline in the quality of earnings, and risks of unanticipated expansion and optimization of channels.