SINOLINK SECURITIES·2025-05-08 13:25Investment Rating - The report initiates coverage with a "Buy" rating and sets a target price of HKD 13.69 per share based on a FY26 P/E of 20 times [4]. Core Views - The company is a leading jewelry retailer in China with a market share of 10% as of 2024, demonstrating strong brand power, product quality, and channel strength [13][14]. - The jewelry industry is expected to see a recovery in gold consumption, shifting the competitive advantage from channel strength to product quality [35][40]. - The company is focusing on product optimization and enhancing store operations to drive high-quality growth, with expectations for improved same-store performance and profitability [3][4]. Summary by Sections Company Overview - The company, founded in 1929, has established itself as a benchmark in the jewelry industry, adapting its growth strategies through economic cycles and maintaining a strong market presence with 6,423 retail points as of Q1 2025 [2][13]. Industry Trends - The demand for gold jewelry is anticipated to bottom out and improve, with a notable shift in consumer preferences towards product aesthetics and craftsmanship [35][40]. - The market for gold jewelry in China has grown significantly, with a CAGR of 11% from 2018 to 2023, and gold products now account for 63% of the jewelry market [35][36]. Product Optimization - The company has a strong aesthetic foundation and has successfully integrated modern design with traditional craftsmanship, launching successful product lines such as the "Heritage" series and the "Palace Museum" series, each generating approximately HKD 4 billion in sales [3][58]. - The proportion of fixed-price gold products has increased from 5% in Q3 2023 to 25.6% in Q1 2025, which is expected to enhance gross margins [3][62]. Store Operations - The company has been optimizing its store network, closing 896 underperforming stores to focus on quality over quantity, with plans to slow down the pace of closures moving forward [3][84]. - New store formats have been introduced, which have shown better performance than average same-store sales [3][84]. Financial Projections - The company forecasts net profits of HKD 57.74 billion, HKD 68.36 billion, and HKD 78.36 billion for FY2025, FY2026, and FY2027, respectively, with a projected P/E ratio of 18.4, 15.5, and 13.5 times [4][88].