Core Viewpoint - The recent adjustments in tax policies for gold and diamonds are expected to increase the cost of jewelry for consumers, impacting major brands that have been promoting diamond-studded gold products. The announcement of these changes has created pressure on retailers, although immediate price adjustments have not yet been observed in stores [1][4][10]. Tax Policy Changes - On October 29, the Ministry of Finance and the State Administration of Taxation announced changes to gold tax policies, effective from November 1, 2023, until December 31, 2027. This includes the cancellation of previous tax exemptions for diamonds, which will now be subject to a 13% VAT [1][4]. - The new gold tax policy categorizes gold usage into investment and non-investment types, with more significant tax adjustments for non-investment purposes. Non-investment gold transactions will be exempt from VAT, allowing buyers to deduct 6% of the invoice amount as input tax [4][18]. Market Impact - Retailers, such as Chow Tai Fook and Lao Pu Gold, have reported feeling pressure from the new tax policies, although they have not yet raised prices in response to the changes. Store employees indicated uncertainty about future price adjustments due to the recent tax changes [9][10]. - The adjustments are expected to affect the entire gold industry supply chain, particularly impacting wholesalers and retail stores. The new tax structure may force retailers to increase prices to maintain margins as they face higher costs for raw materials [13][16]. Consumer Behavior - Observations from retail locations indicate a significant consumer interest in gold products, particularly those that have undergone multiple price increases this year. However, many customers are hesitant to make immediate purchases, reflecting uncertainty in the market [13][10]. - The introduction of the new tax policies has led to a temporary halt in price adjustments by retailers, as many are choosing to observe market reactions before making changes [16][10]. Future Trends - The new tax policies may lead to a rise in the popularity of gold processing shops, as consumers might seek to purchase investment-grade gold directly and process it themselves to avoid higher retail prices. This shift could challenge the traditional pricing models of established jewelry brands [16][18]. - The tax policy retains certain benefits for investment-grade gold, which may help stabilize prices in the market and prevent extreme fluctuations compared to international gold prices [18].

Investment Rating - The investment rating for the industry is "Outperform the Market" (maintained) [1][5] Core Viewpoints - The new tax policy for gold aims to clarify the usage of gold raw materials and implement differentiated tax management, guiding market participants to reduce speculative behavior and promote healthy competition within the industry [2] - The policy changes are expected to benefit leading companies with strong brand and product capabilities, such as Cai Bai Co. and China Gold, while potentially impacting the procurement and liquidity of physical gold for certain enterprises [2][3] - The tax policy adjustments are likely to enhance the competitive edge of leading enterprises, ensuring stable profit margins through differentiated products and service levels [3][16] Summary by Sections Tax Policy Changes - The new tax policy differentiates between investment and non-investment uses of gold, with specific tax implications for each category [4][10] - For investment purposes, the core change is that member units can only issue ordinary invoices to buyers, which cannot be used to deduct input tax, potentially increasing tax costs for businesses [4][7] - For non-investment purposes, the tax treatment shifts from "immediate tax refund" to "tax exemption," which reduces the financial burden on companies but increases the actual VAT payable due to a lower deduction rate [10][11] Impact on Companies - Listed gold jewelry companies, primarily engaged in jewelry retail, may face increased tax costs under the new regulations, but their core competitiveness will still rely on product and service quality [14][16] - The new tax regulations may lead to a shift in consumer purchasing behavior, encouraging purchases from member units of the Shanghai Gold Exchange [7][15] Recommendations - It is recommended to continue monitoring companies that engage in both investment gold and jewelry sales, such as Cai Bai Co., Lao Pu Gold, and traditional leaders like Chow Tai Fook and Luk Fook Holdings, as they are expected to maintain stable profit margins due to their strong market positions and product differentiation [16]