老鋪黃金：一年十倍！老鋪真是黃金界 “愛馬仕”？

$LAOPU GOLD(06181.HK) As the "leading star" in the new consumer sector, Lao Pu has captured investors' attention with its tenfold performance since its listing. As of the close on June 13, Lao Pu has become the highest market capitalization gold jewelry company in the Hong Kong stock market.

Behind the soaring stock price is Lao Pu's rapid growth in performance. Against the backdrop of downgraded mass consumption and a "Waterloo" for high luxury in China, Lao Pu's revenue surged from 1.3 billion yuan to 8.5 billion yuan between 2022 and 2024, with a CAGR of 157%, overshadowing numerous traditional gold stores.

However, behind Lao Pu's continuous rise, there are also various bearish views such as "traditional craftsmanship is a fool's tax" and "Lao Pu is a pseudo-luxury brand." Therefore, this article by Dolphin Research takes a neutral perspective to discuss Lao Pu's investment value with investors.

This article attempts to explore through two questions:

Compared to traditional gold jewelry companies, what is "new" about Lao Pu Gold?
Compared to international luxury brands, how much gap does Lao Pu still have?

The following is the detailed content:

I. What kind of company is Lao Pu Gold?

1. Lao Pu's predecessor was a collector's brand

Before delving into Lao Pu's business model, let's introduce the basic situation of this company. Lao Pu Gold's predecessor was Golden Treasure, a company mainly engaged in Buddhist cultural products and tourist souvenirs. Lao Pu, established in 2009 as a sub-brand of Golden Treasure, primarily deals in traditional gold products.

Lao Pu combines traditional craftsmanship with Buddhist culture, making its products not only rich in traditional cultural heritage but also infused with some metaphysical elements. At that time, Lao Pu's audience was mainly high-net-worth collectors who had relatively high requirements for the craftsmanship, rarity, and cultural value of the products. This collector's gene also endowed Lao Pu with "high style" and "mystique," distinguishing it from mass-market gold brands.

However, at that time, traditional gold craftsmanship was still in a slow penetration stage and relatively niche, with Lao Pu mainly focusing on refining products during this period.

At the end of 2016, Lao Pu Gold was spun off from Golden Treasure for independent operation. With years of craftsmanship accumulation, Lao Pu launched pure gold inlay products in 2019, overturning the traditional standard of using K gold as the base material in the diamond jewelry industry. Riding the wave of the traditional gold industry, Lao Pu took off, embarking on a path to becoming the "king of single stores" in the jewelry world.

2. "Fixed Price" Model, Significant Premium;

To understand what is "new" about Lao Pu Gold, we first need to understand the business model of traditional gold brand companies.

Firstly, for traditional gold jewelry brand companies, due to the strict control of the gold market by the state, companies generally can only purchase through the Shanghai Gold Exchange (SGE), where prices are open and transparent. Therefore, unlike other consumer goods, traditional gold jewelry companies cannot reduce raw material costs through bulk purchases from the cost side.

In terms of pricing models, most traditional gold jewelry generally adopts a "weight-based pricing" model, i.e., gold weight plus processing fee. Since the gold price is anchored to the SGE's daily price, it follows the market. Therefore, without considering stockpiling, the processing fee can basically be equated to the gross profit of traditional gold jewelry brands. (If stockpiling is considered, in a stable upward cycle of gold prices, companies can also enjoy some elasticity from rising gold prices, but traditional gold jewelry companies generally have a low stockpiling ratio and usually adopt a gold leasing model to hedge against gold price fluctuations.)

The level of processing fees largely depends on the brand positioning and brand strength of traditional gold jewelry brands. As shown in the figure below, Chow Tai Fook and Chow Sang Sang have relatively high processing fees.

However, despite the differences in processing fees between different brands, generally speaking, the gross profit margin of weight-based gold is not high, with the industry average level at around 15%.

The core reason is that weight-based gold, as a mass-market category, has little differentiation in product design among brands, which generally revolves around traditional auspicious themes such as zodiac signs, blessings, and love. As consumers, they also pay more attention to the value preservation and investment attributes of gold.

In Dolphin Research's view, this model is more like selling homogeneous raw materials, focusing on low margins and high turnover. The endgame of "selling raw materials" is internal competition, ultimately evolving into a competition of who has lower processing fees. In fact, in the current weak demand, major traditional gold jewelry brands have also increased various weight reduction promotions to attract consumers.

In addition to "weight-based pricing," another pricing method is similar to luxury goods' "fixed price," where the brand sets a fixed price for the product, which includes all costs such as gold raw materials, design, and processing.

Under this pricing method, when converted to weight, it is at least 1-2 times the gold benchmark price. Reflected in the product's gross profit margin, as shown in the figure below, the gross profit margin of fixed-price gold products of various brands is generally above 35%, far higher than that of weight-based gold jewelry.

The target audience for "fixed price" products is mostly young consumers who pay more attention to the emotional value that the product itself can bring. Therefore, brands also "show their skills" in design style, craftsmanship, and material aspects, such as Chow Tai Fook focusing on 3D hard gold, and Chow Sang Sang focusing on gold + enamel mix.

How to understand this relatively new pricing model of "fixed price"? In Dolphin Research's view, its underlying logic lies in the effort to weaken the investment and value preservation attributes of gold, strengthening the consumption attributes of gold.

This model has obvious benefits for traditional gold jewelry brands. Not only can it break out of the vicious cycle of internal competition in processing fees, enhance its differentiated brand strength, and significantly increase its gross profit margin, but more importantly, the gross profit margin can remain stable, unaffected by fluctuations in gold prices.

In fact, since last year, leading traditional gold jewelry brands have increased their investment in "fixed price" gold categories, with a significant increase in their revenue share. For example, in the first half of 2024, Chow Tai Fook's "fixed price" gold revenue increased by 115% year-on-year, with its share rising from 4% to 12%.

Returning to Lao Pu, its uniqueness lies in taking the "fixed price" model to the extreme in pricing. According to Lao Pu's prospectus, Lao Pu's products are divided into two categories: pure gold and pure gold inlay, all adopting the fixed price model, with each piece of jewelry priced according to style and craftsmanship complexity, and prices are increased 2-3 times a year for popular series and styles.

Among them, pure gold, as Lao Pu's traditional category, uses 100% pure gold and is made with traditional craftsmanship, leaning towards traditional wedding, blessing, and fortune-changing ceremonial scenes. Its gross profit margin is similar to that of competing "fixed price" gold products, between 35% and 40%.

As a new category launched by Lao Pu in 2019, pure gold inlay products, through innovative craftsmanship, use pure gold as a carrier and combine it with gemstones, enamel, jade, and other materials to create products with more visual layers, richer shapes, and colors. Its gross profit margin is 8%-10% higher than the pure gold series, making it a key category for Lao Pu to enhance its profitability.

As shown in the figure below, since 2021, the sales share of Lao Pu's pure gold inlay products has soared from less than 40% to over 60% currently. The soaring share of pure gold inlay products also reflects that consumers are paying more attention to the design, craftsmanship premium, and cultural heritage behind the gold carrier.

In a horizontal comparison of classic fixed-price products from various brands, it can be seen that Lao Pu's products, when converted to weight, are more than 30% higher than competing products. Coupled with the fact that all of Lao Pu's products are fixed price, far exceeding the industry average level (currently, the share of fixed-price products in the industry is generally less than 20%), Lao Pu's profitability is far ahead.

From the overall gross profit margin perspective, due to the rapid rise in gold prices over the past two years, while the gross profit margin of other competing products has gradually declined, Lao Pu's gross profit margin has remained stable at around 40%.

3. Pure Direct Sales Model, Creating High-End Scarcity Attributes

Of course, no matter what is sold, everyone wants to sell at a premium, but what truly convinces users is obviously not just setting a high price.

In Dolphin Research's view of consumer goods companies, high premiums are generally associated with front-end channel control and specific advantages in back-end design, materials, or production processes.

In this regard, Lao Pu Gold is basically the same:

a. Direct Sales Control

In terms of business model, traditional gold jewelry companies generally adopt a franchise system, heavily relying on channel distribution. Well-known brands like Chow Tai Fook, Lao Feng Xiang, Chow Sang Sang, and Chow Tai Seng have thousands of stores, with over 90% being franchise stores. Therefore, changes in franchisees' purchase volumes have a significant impact on the company's performance.

This franchise model is similar to the traditional distribution system, where the increase in market share requires continuous store openings by franchisees. Generally speaking, apart from short-term sharp rises and falls in gold prices suppressing terminal consumer demand, franchisees' purchases are relatively stable most of the time when gold prices show a slow upward trend.

Gold from the Shanghai Gold Exchange goes through brand merchants, manufacturers, and franchisees, with each link adding a certain percentage of markup, benefiting all links in the industry chain.

Therefore, traditional gold jewelry companies generally adopt a light asset operation model, expanding channels through continuous store openings by franchisees in a low-margin situation, earning more from the turnover from precious metals to gold jewelry.

From a ten-year perspective, although leading traditional gold jewelry companies have achieved continuous growth by opening stores in lower-tier markets through franchisees, capturing terminals, the chaos of low-price smuggling, false promotions, and chaotic pricing systems under the franchise system has always existed.

Therefore, as the market gradually saturates (starting in 2024, brands like Lao Feng Xiang and Chow Sang Sang have begun to show negative growth in store numbers), when companies attempt to improve store efficiency and transition to high-end, the weak control over terminal goods and pricing under the franchise model will become an unavoidable obstacle for companies.

What makes Lao Pu unique is that from the beginning, it has adopted a pure direct sales model for refined management, strictly controlling store expansion. Over the past five years, Lao Pu's store count has only grown from 18 to 36, and they are mostly located in top luxury malls like SKP and MixC in first-tier and new first-tier cities, neighboring brands like LV and Hermès.

From store location to operation, Lao Pu's positioning is very clear, also copying the classic luxury brand strategy—"open fewer stores, open big stores," ensuring the ultimate store experience while maintaining scarcity attributes to enhance store efficiency.

The pure direct sales model not only allows Lao Pu to achieve unified and standardized management of stores, ensuring service quality, but more importantly, under the direct sales model, Lao Pu can control goods from the supply side, creating a scarcity attribute that is hard to buy, which we will analyze in detail later.

Although Lao Pu currently has only 37 stores worldwide, in terms of store efficiency, Lao Pu's average sales performance in a single mall reached 330 million yuan in 2024, ranking first among many international jewelry brands.

To feel Lao Pu's terrifying store efficiency in comparison: in 2024, among Hermès' 315 top luxury stores worldwide, the average single-store revenue was only 380 million yuan. In other words, Lao Pu's single-store efficiency is almost catching up with Hermès.

Therefore, unlike traditional gold jewelry brands that rely on store openings to achieve performance growth, the growth strategy of Lao Pu, the luxury brand in the gold industry, is not to open stores but to control the number of store openings and increase single-store efficiency.

According to the 2024 annual report, the revenue increment contributed by new stores accounted for only 15%, with 85% of the growth coming from the improvement of existing store efficiency.

4. High Gross Margin, High Expense Ratio, High Net Profit

Finally, in terms of profitability, as shown in the figure below, due to Lao Pu's pure direct sales model, it needs to pay store-related operating expenses and entry fees for high-end shopping districts. To create a high-end image, Lao Pu's store rent and entry fees are generally higher, so the sales expense ratio is significantly higher than that of traditional gold jewelry companies. However, due to Lao Pu's cliff-like leading gross profit margin, its net profit margin is still more than 10 percentage points higher than its peers.

In the previous text, we focused on analyzing the differences between Lao Pu's business model and traditional gold jewelry brands in terms of pricing and operating models. It can be seen that:

a. Traditional Gold Jewelry Business: The traditional gold jewelry business, priced by weight, cannot reduce costs through bulk purchases at the upstream raw material end. In terms of pricing, due to homogeneous product competition, it is also difficult to enhance its premium ability by increasing processing fees, resulting in low profitability. Ultimately, it can only evolve into maintaining performance growth through channel expansion, which, in Dolphin Research's view, is not a good business.

b. Turning Gold into Luxury: Lao Pu's commendable aspect is that through innovation in business models, it has successfully freed itself from the low-profitability attributes of the industry by adopting luxury pricing and operating methods, and achieved rapid performance growth through the rapid improvement of store efficiency.

II. Only the "Skin" of Hermès, Lao Pu Still Lacks a Leap in Soul to Become a Luxury Brand

Although Lao Pu can be called the "Hermès" of the gold industry in terms of channel marketing and capacity control, in Dolphin Research's view, this is only the superficial aspect of luxury.

The true "bone beauty" of luxury lies in the most unattainable brand mindset, concretely manifested as:

a. Transcending Borders Global Recognition;

b. Design is not important, Logo is important: Product design transcends decades of aesthetic cycles, with decades of consistent best-selling items;

c. Hard Currency: Product pricing and price increases are not affected by raw material costs and economic cycles;

Here, let's compare and see at what stage Lao Pu is in the upgrade transformation of gold consumption into luxury:

Currently, in Lao Pu's manufacturing costs, design and craftsmanship expenditures account for only a slightly higher proportion of total sales costs, but the gross profit margin improvement brought by this small amount of design and craftsmanship cost is very significant, and the entire gross profit premium mainly comes from this.

However, Dolphin Research also notes that, with the same store count and similar single-store efficiency as luxury brands, Lao Pu Gold's gross profit margin is significantly different from that of true luxury brands.

It can be seen that one of the standard features of luxury brands is reflected in financial indicators, with a gross profit margin generally around 70%, rarely below 65%.

However, Lao Pu's gross profit margin level is only around 40%, lacking 30 percentage points of luxury brand premium. Therefore, although it can be marketed as Hermès, it currently does not have a Logo premium and cannot enjoy luxury brand valuation.

Another real reason is that although Dolphin Research says it has weakened the investment and value preservation attributes of gold jewelry, this attribute still exists due to the high proportion of inventory (accounting for nearly 70% of total assets). This also means that Lao Pu cannot truly break away from the gold price cycle. Therefore, when Lao Pu's valuation aligns with luxury brands, it is basically at the valuation peak.

In the next article, Dolphin Research will focus on the real reasons behind Lao Pu's current popularity and analyze Lao Pu's future growth potential. Stay tuned!