The profit of LAOPU GOLD has tripled, but it has yet to establish an "indestructible golden body."

LAOPU GOLD (6181.HK) has delivered a performance forecast with a three-digit growth rate as expected.

In the first half of the year, it is expected to achieve revenue of 13.8 billion to 14.3 billion yuan, a year-on-year increase of 240%-252%.

The rapid growth in revenue has significantly diluted expenses, allowing the operating leverage effect to continue to manifest.

Adjusted net profit is expected to increase nearly threefold year-on-year, with an adjusted profit margin reaching 18.4% to 19.7%, further improving from 17.7% in 2024.

Compared to the impressive performance, the capital market's valuation judgment of LAOPU GOLD seems to be diverging.

Since its listing in June 2024, LAOPU GOLD's stock price has soared, increasing more than 14 times within a year. However, after reaching a historical high of HKD 1108 per share in early July, it began to decline.

The day after the performance forecast was disclosed, LAOPU GOLD's stock price fell by 4%, down 30% from the historical high at the beginning of the month.

The "Hermès of the gold industry" still holds imaginative potential for the market, with a current dynamic price-to-earnings ratio of nearly 80 times, significantly leading peers like Chow Tai Fook (1929.HK).

However, looking ahead, the balance between the speed of new store expansion and the profitability of existing stores will be key to whether LAOPU GOLD can sustain its growth.

The "perfect" narrative outlined by the brand may face challenges from the cyclical changes in gold prices.

Highlights

LAOPU GOLD has demonstrated "another possibility" for gold and jewelry brands.

Relying on core locations in high-end business districts such as SKP and MixC, both the decoration and service are benchmarked against luxury goods, implementing a "one price" model, and the stable price increases each year create a sense of scarcity, all of which have become LAOPU GOLD's strengths.

According to Tang Xiaotang, an independent analyst in the fashion industry at No Agency, LAOPU GOLD has found a perfect combination between Chow Tai Fook, Luk Fook (0590.HK), and luxury brands like Cartier and Van Cleef & Arpels, possessing both the underlying value of gold raw materials and the intangible value of jewelry brands, design, and craftsmanship.

This allows it to enjoy a higher premium than Chow Tai Fook and Luk Fook, while also highlighting cost-effectiveness compared to traditional jewelry brands like Van Cleef & Arpels. Therefore, in the current downturn of both gold and luxury goods sales, LAOPU GOLD stands out.

The luxury narrative centered on "ancient method gold" is continuously propagated and solidified through social media dissemination of "5-hour queue purchase strategies" and "wealthy women queuing to buy."

In 2023 and 2024, LAOPU GOLD added 76,000 and 147,400 loyal members respectively, accounting for 71.52% and 81.64% of the total membership that year.

Lin Wenjia, Chief Consumer Analyst at Ping An International, believes that LAOPU GOLD's image has become strongly bound to the niche track of ancient method gold, establishing a strong brand moat, and will achieve "brand power monetization" by expanding market coverage in the future.

In 2024, LAOPU GOLD enters an accelerated expansion phase, with a net increase of 7 stores throughout the year and the optimization and expansion of 4 stores.

The opening of new stores will further accelerate in 2025, with 5 new stores opened in Beijing, Singapore, and Shanghai in the first half of the year.

The first overseas store has landed at the Marina Bay Sands Shopping Center in Singapore in June, adjacent to luxury brands such as Louis Vuitton, Hermès, and Chanel According to Morgan Stanley data, the tenant's revenue per square meter at Marina Bay Sands in Singapore is approximately 223,800 yuan in 2024, higher than the previously established Beijing SKP and Venetian Macao.

Morgan Stanley believes that this store is seen as a strategic foothold to capture the demand of high-end Chinese tourists, with strategic significance far exceeding the financial contribution of a single store. If the market can be successfully opened, it will greatly boost investors' confidence in the company's expansion potential across the Southeast Asian market.

In addition, LAOPU GOLD's four stores located in Hong Kong IFC, Nanjing IFC, Shenzhen Bay MixC, and Shanghai Xintiandi are expected to open in the second half of this year.

The market expects that by the end of 2025, the actual number of stores will increase by at least 9, exceeding the initial plan of 6-8 stores at the beginning of the year.

Compared to the long cycle of store construction, improving store efficiency remains the core factor driving high revenue growth.

In 2024, LAOPU GOLD's same-store sales growth reached 121%, achieving nearly 10 billion yuan in sales with 36 stores, even surpassing many international first-line luxury brands in several top commercial districts.

Founder Xu Gaoming stated, "In the future, the average store efficiency must exceed 1 billion yuan, and stores with efficiency below 500 million yuan will be closed."

Benefiting from the expansion of brand influence and adjustments in product structure, the trend of doubling store efficiency is expected to continue into 2025.

A survey by Ping An International in early July showed that LAOPU GOLD's same-store sales in the SKP channel increased by about 200% year-on-year in the first half of the year, exceeding the market's expectations for the entire year of 2025 at the beginning of the year.

Gold Price Test

The key factor supporting LAOPU GOLD's valuation narrative lies in its pricing power detached from costs.

Research data from Ping An International shows that LAOPU GOLD's product premium rate reaches 60%-80%, far exceeding the 10%-20% of ordinary gold jewelry brands.

Through stable and continuous price increases, LAOPU GOLD has maintained a gross profit margin of over 40%, while Chow Tai Fook and Luk Fook have gross profit margins of about 20%.

However, the brand also benefits from the traffic bonus brought by rising gold prices.

In the past year, LAOPU GOLD's price increase has been basically in sync with the upward trend of gold prices. Even during periods of accelerated gold price increases, the price adjustments appeared slightly "lagging," highlighting its cost-effectiveness compared to Chow Tai Fook and others.

As risk aversion demand recedes, the trend of unilateral gold price increases is coming to an end, and stabilization or even bearish sentiment is spreading.

This not only means that LAOPU GOLD's brand halo will no longer be supported by gold but also indicates that the brand's price increases in the second half of the year will diverge from cost trends, shifting towards counter-cyclical price increases.

Whether further increasing the premium rate will affect consumer willingness remains unknown, but combined with high base pressure, the growth rate of store sales may face challenges.

Unlike the mainstream practices in the industry, LAOPU GOLD has not used hedging tools to offset gold price volatility risks, nor has it alleviated pressure through gold leasing.

This allows the company to fully realize the benefits of hoarding gold when prices rise, while also bearing the risk of inventory impairment when prices fall.

However, in the long run, a decline in gold prices constitutes a cost-side benefit for LAOPU GOLD.

If it can further weaken the constraints of gold costs on pricing through product structure upgrades, its gross profit margin may be expected to break through the 40% level, releasing greater brand premium space To meet the expansion needs of its self-operated stores, LAOPU GOLD is still accelerating its gold accumulation.

By the end of 2024, the increase in gold reserves has driven the inventory scale to leap from 1.268 billion yuan in the same period last year to 4.088 billion yuan, a year-on-year surge of 222.4%.

The exponential expansion of sales scale has raised the cost of capital tied up in inventory, putting pressure on operating cash flow.

In the past two years, LAOPU GOLD's net operating cash flow has flowed out 30 million yuan and 1.23 billion yuan, respectively, and the lack of self-generated cash flow has led to reliance on external financing to support operations.

In June 2024, after completing a HKD 1.04 billion IPO fundraising in the Hong Kong stock market, LAOPU GOLD further increased its financial leverage.

By the end of 2024, unsecured bank loans surged to HKD 1.37 billion, an increase of more than ten times year-on-year, with the proportion of current liabilities rising from 28% in 2023 to 61%.

The total cash flow generated from the company's fundraising activities throughout the year reached 1.96 billion yuan, nearly 18 times higher than in 2023.

As a core indicator driving growth at this stage, if same-store sales growth in the second half of the year falls short of expectations, it will have a certain impact on market confidence and subsequent operational stability.

In fact, as the promotional efforts in shopping malls have weakened, the once bustling scene of "wealthy women queuing to buy" is now hard to see.

According to a survey by Ping An International, the GMV growth rate of LAOPU GOLD's Beijing SKP store has slowed from nearly 300% in February-March to 150%-200% in April-June.

Excluding the high growth halo of gold prices and stock prices, LAOPU GOLD, which has been established for less than ten years, still appears immature in the "luxury goods" category.

Since its listing, LAOPU GOLD's stock price has shown a high correlation with gold price trends. For it, proving itself during a gold price downturn is of significant importance