Nomura: LAOPU management remains confident in sales and profits for next year; the impact of changes in gold purchase tax is limited

Nomura published a report stating that LAOPU GOLD (06181.HK) participated in the China Investor Forum held by the bank last Thursday (13th), citing LAOPU's sales momentum during the "Double 11" period remained strong, with sales exceeding RMB 1 billion on the Tmall platform. Despite LAOPU's third price increase in October, customers have still been queuing outside some stores in recent weeks. The recent modification of the gold purchase tax will increase LAOPU's raw material procurement costs by 6%, and the bank estimates this may narrow the gross profit margin by 3 to 4 percentage points. However, the bank believes the actual impact on the gross profit margin is minimal, as LAOPU had previously raised prices and accumulated gold inventory at lower costs.

The bank quoted management as saying there are no plans to open more stores in mainland China next year. The main focus is on improving the operations of existing stores through renovations and expansions. The bank mentioned that there is still penetration space for LAOPU in core business districts of second-tier cities such as Chongqing and Changsha. LAOPU maintains its plan to open 3 to 4 new stores outside mainland China. The bank quoted management as expressing confidence in sales and profit momentum for next year.

The bank stated that the modification of the gold purchase tax may benefit industry leaders. In the short term, it may harm consumer sentiment, but according to channel surveys, it will also help large enterprises capture market share from smaller peers. Particularly for LAOPU, as the company had raised prices three times before the tax modification and increased prices earlier than other gold retailers, the bank estimates that part of the demand for gold jewelry will shift from other brands to LAOPU. The bank reiterated a "Buy" rating for LAOPU with a target price of HKD 1,160