Due to the impact of the black swan, the tourism, hotel, and food delivery industries have all received obvious shocks this year, and the gold and jewelry industry has not escaped this crisis. According to Euromonitor survey data, due to the general environmental impact in the first half of the year,
The annual sales of gold and jewellery is expected to decline by 13.97% year-on-year to 608.47 billion yuan.
In this context, after Chow Tai Fook released its interim results report for the six months ended September 30 on the 24th, on November 26, Beijing time, Luk Fook Group also released a performance report after the Hong Kong stock market. The financial report data of both parties Each has its own merits. As of the close of trading on the 27th, Chow Tai Fook’s stock price increased by 38.66% during the year and Luk Fook Group fell by 8.32%.
Both are among the top ten brands in my country's gold and jewellery industry with a market share. Which of the interim results reports of Chow Tai Fook and Luk Fook Group is better? As the impact of the epidemic weakens, consumption upgrades, and the recent vaccine news has injected another shot into the entire gold jewelry market, who can seize more market share in the industry reshuffle in the future?
Industry growth has not returned to "positive" in the post-epidemic era
From the interim financial report data, it can be seen that Luk Fook Group’s revenue was 3.3 billion Hong Kong dollars, a 47% decrease from the same period last year, and revenue was almost cut in half. In the six months ended September 30, 2020, Chow Tai Fook’s half-year turnover fell by 16.5%. There seems to be some common factors under the trend that the two have not resumed positive growth.
First, although some institutions predict that there may be a wave of retaliatory consumption in the future, most consumers are still experiencing consumption degradation during the reporting period. Looking at the overall industry environment, prices have risen, but per capita wages have not increased but decreased. Consumers are more inclined to choose products with high quality and reasonable prices. More and more people’s concept of consumption and money has begun to turn to be vigilant against consumerism, leading to The weak demand for gold and jewelry during the reporting period failed to return to the level before the epidemic.
Second, because 2019 is a "dumb year", that is, there is no "Beginning of Spring" in the lunar calendar that year, and folk superstitions are not suitable for marriage. In 2020, due to the severe impact of the epidemic, weddings and banquets in many regions have temporarily suppressed the demand for gold and jewelry.
However, in recent years, the marriage rate in my country has dropped from 9.92% in 2013 to 7.3% in 2018, and the number of registered marriages has also declined year-on-year for five consecutive years from 2014 to 2018. With the adverse effects of the one-child policy of millennials and the current changes in young people's awareness of marriage, the number of marriages in the future may continue to decline, which may have a sustained impact on the sales of gold jewelry.
Third, according to a survey report on Gen Z groups called "OK Zoomer" recently released by Bank of America, Gen Z’s current income is US$7 trillion and will reach US$33 trillion by 2030. It will account for 27% of the world’s income and will surpass the millennial generation to become the largest economic group in the second year.
With Generation Z becoming the main consumer force, the gold jewelry market is also quite dependent on this group of people. However, the latest data shows that the low-priced fashion jewelry market seems to be more popular with Generation Z at this stage.
According to Euromonitor data, China’s low-customer-price fashion jewelry consumption increased from 80.1 billion yuan in 2015 to 104.5 billion yuan in 2019, with a CAGR of 6.87%, maintaining a rapid growth rate and accounting for the entire gold jewelry industry’s sales. The proportion has also increased from 13.19% in 2015 to 14.77% in 2019.
In the future, as domestic women pay more attention to their external image, fashion jewelry accessories with a lower unit price than gold jewelry customers may be favored by more and more young women due to their characteristics of fashion trends and multi-scene consumption. These external factors may have a long-term impact on the gold and jewelry market represented by Chow Tai Fook and Luk Fook Group in the future.
The mainland market widens the gap between the two sides
Although the revenue data of Chow Tai Fook and Luk Fook Group have not yet broken free from negative growth, other financial indicators of the two parties are not the same. During the reporting period, Chow Tai Fook's main operating profit increased by 15.6%, and the main operating profit margin for the first half of the 2021 fiscal year rose to 16.5%.
During the reporting period, Luk Fook Group’s gross profit decreased by 41.2% to HK$1.1 billion, operating profit decreased by 41.4% to HK$387 million, profit attributable to equity holders decreased by 41.3% to HK$291 million, and basic earnings per share were HK$0.50, year-on-year A reduction of 41.2%. In this comparison, Chow Tai Fook's performance in the six months ended September 30, 2020 seems to be slightly better than that of Luk Fook Group.
Part of the reason may be that the number of stores and expansion speed of Chow Tai Fook are much higher than that of Luk Fook Group. According to the financial report data of both parties, as of September 30, 2020, Chow Tai Fook's retail outlets have expanded to 4,153, and a net increase of 303 in the first half of fiscal year 2021 . During the same period, Luk Fook Group only added 60 stores, with a total of 2,180 at the end of the period, which is about half of Chow Tai Fook. Due to the advantages of scale, the Chow Tai Fook Group will naturally recover faster.
But at its root, the main gap between the two parties may be the layout of the mainland market. In recent years, Chow Tai Fook has been accelerating its deployment in the mainland market. In the last two fiscal years, mainland revenue contributed 68.5% and 60.7% to the company's turnover, respectively. The latest financial report data shows that with the slowdown of the new crown epidemic, the mainland China's turnover in the first half of the 2021 fiscal year recorded a growth of 4.9%, and its contribution to the Group's turnover accounted for as much as 86%.
Lukfook Group has not been able to narrow the layout of the Hong Kong and Macau markets. In 2019, the market’s contribution to Lukfook’s turnover was as high as 57.6%. As a result, in terms of same-store sales growth during the reporting period, Lukfook Hong Kong And the turnover of the Macau Special Administrative Region fell by 70.2% year-on-year, and the mainland market also fell by 30.1% year-on-year.
Due to the huge population base, strong consumption power and convenient channels, the Chinese mainland market has gradually become the business focus of many gold and jewelry companies. Lukfook Group is also accelerating its deployment in the mainland market. During the reporting period, Lukfook Group added 20 "Goldstyle" stores in the mainland market, and will further deepen its penetration in the mainland market in the future.
Luk Fook Group’s accelerated deployment in the mainland market is not good news for Chow Tai Fook. Even though Chow Tai Fook Group has an advantage in market penetration in the mainland market, consumer preferences are changing rapidly. Who can seize the mainland market in the future and win mainland consumers’ interest? Joy, there is still time to review.
Investment banks hold high the "buy" banner, or the gold and jewelry industry will welcome a "new turning point"?
After the announcement of the financial reports of Chow Tai Fook and Luk Fook Group, not only the stock price rose sharply, but many investment banks raised their ratings. Guotai Junan Securities (Hong Kong), Lyon, Daiwa, and Nomura have given Chow Tai Fook a "buy" rating. Citigroup and Macquarie also maintained the "Buy" rating of Luk Fook Group after the financial report.
According to data from the National Bureau of Statistics, with the epidemic under control, the year-on-year growth rate of retail sales of gold jewelry above designated size in my country has increased from -41% in January-February 2020 to +7.5% in July. In the future, under the concentrated release of demand, a wave of rebound may be ushered in.
As the industry picks up, institutions are optimistic about the development of the industry in the fourth quarter, which also brings some new hope to players in the industry. Judging from the current industry situation, who can be more brilliant in this warm winter?
Although the performance of Chow Tai Fook and Luk Fook Group has not yet turned positive, the online results cannot be underestimated. In the first half of the year, Chow Tai Fook cooperated with Li Jiaqi and Wei Ya, two leading anchors, and sold 5,000 products within 30 seconds of Li Jiaqi’s live broadcast. In addition to regular online sales, Luk Fook Group has also begun to experiment with new traffic channels such as Douyin and Xiaohongshu. Even after the explosion of "Nezha", the classic IP jointly launched the Nezha series of products.
As an old domestic brand with a long history, Fengxiang has always "dominated" the third and fourth tier cities. On October 28, Lao Fengxiang released a report for the third quarter of 2020. In the first three quarters, the company's operating income increased by 4.12% year-on-year to 43.867 billion yuan, and the net profit attributable to shareholders of listed companies increased by 5.73% year-on-year to 12.326 billion yuan. Its recovery and growth The speed is among the best in the entire industry.
As the overseas epidemic is still severe, some foreign jewelry brands such as Tiffany and Cartier have also begun to increase their layout in the Chinese market this year. According to Fashion Business Express, on October 31, the US luxury jewelry brand Tiffany released its third-quarter performance report. The Asia-Pacific market, where China is located, became the only growing region, with revenues rising 30% to US$382 million.
In terms of stock price performance, Tiffany's stock price remained at a peak of around US$133 from the end of November to the end of February this year, with a market value of nearly US$16 billion. At the end of December, it has surpassed the Hong Kong-listed Chow Tai Fook Jewellery Group and became the world's most valuable jewellery. Retailers are also doing their part when competing for the next market dividend.
All in all, although the capital market is relatively optimistic about the prospects of the gold jewelry industry, there are too many variables in the overall environment or competition, and it is impossible to determine how the industry structure will evolve in the future. For Chow Tai Fook and Luk Fook Group, if the market wants to continue to be optimistic about it, it may be urgent for the two companies to achieve a positive growth as soon as possible while maintaining rapid development.
