LAOPU GOLD's Q2 report highlights: Strong performance meets expectations, high dividend is a surprise

LAOPU GOLD delivered a strong mid-term performance report that met market expectations, while a generous dividend plan brought unexpected joy to investors.

According to the Chase Trading Desk, on August 20, Citigroup, UBS, and Nomura Securities released a mid-term performance review of LAOPU GOLD, stating that despite the profit margin being squeezed by rising gold prices, LAOPU GOLD achieved rapid performance growth through strong sales growth, operational leverage, and high-end brand positioning. Furthermore, with an unexpectedly generous mid-term dividend plan, the company conveyed strong confidence in its future development to the market.

The latest announced performance of LAOPU GOLD for the first half of 2025 shows that the company achieved better-than-expected growth in both revenue and profit, with operating revenue reaching 12.354 billion yuan, a year-on-year increase of 251%, and adjusted net profit reaching 2.35 billion yuan, a year-on-year increase of 291%, which is basically consistent with the profit forecast previously released by the company.

The market's focus is not only on the strong performance itself, but also on the company's unexpected announcement of its first mid-term dividend since going public and its future normalization of the dividend policy. This move is seen by multiple investment banks, including Nomura and UBS, as a positive signal of the management's commitment to shareholder returns.

Notably, the company announced a mid-term dividend of 9.59 yuan per share, with a payout ratio as high as approximately 72%-73%. At the same time, the company established a new policy of paying dividends twice a year, promising that the total amount of future dividends will not be less than 50% of cumulative earnings. According to Nomura Securities' analysis, against the backdrop of the company's operating cash flow being pressured by increased inventory in the first half of the year, such a generous dividend highlights its robust financial condition.

Operational Leverage Offsets Gross Margin Pressure

Due to cost pressures from rising gold prices, LAOPU GOLD's gross margin for the first half of 2025 decreased from 41.3% in the same period last year to 38.1%, a year-on-year decline of approximately 3.2 percentage points. According to reports from UBS and Citigroup, this is mainly due to the increase in gold procurement costs outpacing the price increases of the average product.

However, multiple institutions pointed out that the operational leverage effect brought about by strong sales growth effectively offset this impact.

According to UBS data, due to significant sales growth, the company's operating expenses as a percentage of revenue decreased by 5 percentage points year-on-year to 13.8%. Citigroup's report also noted that the ratio of sales and administrative expenses to sales decreased by 5.1 percentage points. This better-than-expected operational leverage effect successfully countered the impact of the decline in gross margin, ensuring the overall expansion of the company's profitability. The market generally expects that the company will implement a new round of product price adjustments on August 25 to cope with cost pressures.

Generous Dividend Payout as an Unexpected Delight

The biggest highlight of this financial report is undoubtedly the shareholder return plan announced by the company. LAOPU GOLD declared an interim dividend of RMB 9.59 per share, marking the first time since its listing. The company also established a future high proportion, normalized dividend policy, committing to two dividends each year, with a promise that the total dividend payout will not be less than 50% of cumulative earnings.

Nomura Securities stated in its report that LAOPU GOLD's efforts to enhance shareholder returns are a "positive signal." The firm believes that such a generous dividend, especially in light of the company's operating cash flow recording a net outflow due to inventory replenishment in the first half of the year, "indicates its robust financial condition."

UBS also described this interim dividend as an unexpected "surprise" (beat). The financial report showed that the company's operating cash outflow in the first half of the year was RMB 2.2 billion, mainly due to inventory surging from RMB 4.1 billion at the end of last year to RMB 8.7 billion.

Citigroup expects that as the returns from new store investments materialize, the company's free cash flow is likely to turn positive by 2026. This unexpected shareholder return plan has been interpreted by the market as management's strong confidence in future cash flow and profitability.

Efficient Store Operations and Brand Moat

LAOPU GOLD's performance growth is driven by strong single-store efficiency and brand value. According to UBS's report, the company's same-store sales growth rate (SSSG) reached an astonishing 200.8% in the first half of the year. Data from Citigroup shows that single-store sales in its mainland and overseas markets achieved year-on-year growth of 174% and 208%, respectively.

The steady expansion of the store network also contributed to growth. As of the end of June, the total number of stores reached 40 to 41, with a net increase of 4 to 5 stores in the first half of the year. Citigroup specifically pointed out that the company has entered nine of China's top ten high-end commercial centers, further consolidating its position in the high-end market.

More importantly, its high-end brand positioning has been validated by data. Both Nomura and Citigroup's reports cited data indicating that LAOPU GOLD's customer overlap with five top international luxury brands (such as Hermès, Louis Vuitton, etc.) is as high as 74%-81%. Citigroup referred to this data as a "positive surprise," strongly demonstrating its brand value.

Outlook for the Future

Overall, investment banks hold a positive attitude towards LAOPU GOLD's future development, but ratings are slightly differentiated:

• Nomura Securities maintains a "Buy" rating with a target price of HKD 1,148, believing that the company's focus on shareholder returns is a positive signal and that its leading position in China's jewelry industry has been consolidated.

• Citigroup reiterates a "Buy" rating with a target price of HKD 1,084, believing that the company's valuation "looks inexpensive" and expects its free cash flow to turn positive by 2026.

• UBS maintains a "Neutral" rating with a target price of HKD 980. The firm believes that the performance meets expectations, the dividend exceeds expectations, but is concerned about whether the gross profit margin will further narrow in the second half of the year and is waiting for more interpretations from management during the earnings briefing Looking ahead, the market's focus includes: management's guidance on future expansion and pricing strategies at the investor meeting scheduled for August 21, as well as the impact of the planned product price adjustment on sales momentum, which will take place on August 25. At the same time, fluctuations in gold prices, market competition, and the macro consumption environment remain the main risks faced by the company.

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