CMSC: Leading enterprises practice high-end transformation and brand reform, expected to transcend the gold price cycle.

CMSC has released a research report stating that as gold prices have rapidly strengthened since 2023, the consumer group for gold jewelry has shifted from the mass market to mid-to-high-end consumers in first- and second-tier cities. The purpose of purchasing has transitioned from marriage & collection & value preservation to self-enjoyment & collection & value preservation, moving from asset-based ownership to aesthetic wearing, and shifting focus from weight to craftsmanship and cultural connotation. For mid-to-high-end brands, capabilities in original product development, iterative craftsmanship, refined channel management, and the layout of channels in first- and second-tier cities are likely to become core competitive factors in the next stage. Key points from CMSC are as follows: A review of the operational history of leading gold jewelry brands over the past 20 years: 1. 2003-2013: As gold prices rose alongside rapid economic growth, the growth rate of gold and silver jewelry retail sales remained between 10% and 50%. 2. 2014-2016: Due to declining gold prices, product homogeneity, and an overall slowdown in the consumer sector, the industry underwent a phase of adjustment, with store saturation and a clear trend of low-level price wars, leading to a decline in overall industry profitability. 3. 2017-2023: With gold prices stabilizing and rising, the consumer market experienced an upgrade in product craftsmanship, while ancient craftsmanship and hard gold upgrades drove the release of self-enjoyment demand. The channel side saw an intensification in first- and second-tier markets, benefiting from monetary compensation for housing improvements, significantly upgrading consumption in lower-tier markets, prompting brands to accelerate channel penetration. 4. From 2024 to now: The cumulative increase in gold prices from 2024 to March 2026 is 109%, with year-on-year declines in gold jewelry consumption from 2024 to Q1 2026 being 25%, 32%, and 37%, respectively. The consumer group is increasingly concentrated among the middle class and high-net-worth individuals in first- and second-tier cities, forcing brands to rapidly upgrade in terms of products, craftsmanship, channels, and marketing. 1) In terms of products: Ancient craftsmanship gold represented by old shops and inlaid series products (rose window, cross, seven-child gourd, Vajra pestle, etc.), gold embedded products represented by CHOW TAI FOOK's Chuanfu, Chuanxi, Forbidden City, and Wansxiang series, and LUK FOOK HOLD's Fuman Chuanjia series and Ice Diamond Light and Shadow Gold series are selling exceptionally well. At the same time, many emerging brands such as Junpei, Linchao, Baowangfu, and Baolan have emerged. 2) In terms of channels: Traditional brands are closing inefficient mainland franchise stores, with CHOW TAI FOOK netting a closure of over 1,800 stores by the end of 2025 compared to the end of 2023, Chow Tai Seng Jewellery netting 627 closures, and Lao Feng Xiang netting 639 closures. Old shops are opening in high-end business districts like SKP, Wansxiang, Shanghai Newland Pharmaceutical, Harbour City, Nanjing Deji, etc. CHOW TAI FOOK is also starting to establish luxury image stores in Hong Kong and Shanghai starting from 2025. Enhancing store efficiency and profitability per store has become the operational goal for leading brands. 3) In terms of the supply chain: Transitioning from ordinary cast gold to 3D hard gold, 5D hard gold, 5G gold, and 6D gold inlays, the high gold prices are driving the craftsmanship to upgrade towards lighter weights, stronger inlays, and higher precision. Market trend review: Commonality analysis and valuation analysis of leading companies in different stages: In addition to the impact of gold price fluctuations, the certainty of performance determines the volatility of valuations and the height of the central tendency, while higher valuation elasticity comes from differentiated narratives of high growth stages. 1. 2003-2013: There were relatively few listed companies in the sector, creating a scarcity premium, with the leading valuation being Guangdong CHJ Industry, which was listed at the end of the period (its PE rose from 40X to 70X within a year of listing, and from 2011 onwards, PE fluctuated between 20-40X), while Lao Feng Xiang and LUK FOOK HOLD also had relatively high valuations during this period (Lao Feng Xiang between 10-25X, LUK FOOK peaking at 18X). Influenced by loose liquidity and rising gold prices, from 2009 to 2011, the stock prices of listed companies in the sector rose, with Lao Feng Xiang's stock price increasing tenfold, LUK FOOK HOLD twentyfold, and Guangdong CHJ Industry seeing its stock price nearly double in the same year it was listed in 2010. From 2011 to early 2014, consumption growth began to slow, with significant volatility in gold prices, resulting in a general slow decline in stock prices. 2. 2014-2016: With declining gold prices, weak consumption of gold jewelry, and severe market adjustments, the stability of performance affected valuation levels. Lao Feng Xiang maintained its status as the most stable company with a wholesale model that buffered the impact, where its valuation fluctuated relatively little, remaining between 10X-20X. Stock prices of CHOW TAI FOOK and LUK FOOK were halved, with valuations maintained between 8-15X; Guangdong CHJ Industry, affected by its fashion jewelry attributes and issues related to private placements and acquisitions, had high but wildly fluctuating valuations, with PETTM between 25X-65X. 3. 2017-2023: Entering a channel-driven phase, the heavy homogeneity of gold products and insufficient brand premiums resulted in market pricing being determined by channel expansion in terms of space, speed, and certainty. Rapid rises in gold prices in 2020 released demand and amplified the performance elasticity of channel expansion. Throughout this stage, the central tendency of industry valuations locked in at channel valuations of 10-20X, with business models showing no significant differentiation, leading to no company attaining a significant premium; the differences in valuation centrality were based on the speed and space of expansion by different companies. CHOW TAI FOOK opened nearly 3,000 new stores from FY2022 to FY2023, with a peak market value corresponding to a 25X PE; Chow Tai Seng Jewellery's franchise stores doubled to 4,775 in seven years, with valuations in the range of 10-35X, while Lao Feng Xiangs valuation remained between 10-20X. Guangdong CHJ Industry missed the expansion period due to earlier diversification and acquisitions that dispersed resources and suffered from goodwill impairment, resulting in a drastic profit decline and distorted PE; LUK FOOK HOLDs valuation remained between 6X-20X, mostly below 15X. 4. From 2024 to now: Companies driven by brands and differentiated products are given valuations of 10X+, while those with differentiated product capabilities and brand premiums are experiencing valuation recovery, with companies possessing scarce growth narratives (like LAOPU GOLD's high-end brand, Guangdong CHJ Industry's fashion jewelry story) achieving the largest valuation elasticity; both LAOPU GOLD and Guangdong CHJ Industry reached valuation peaks above 30X in 2025. Risk warning: Risk of gold price fluctuations: Gold prices can be highly volatile; if gold prices rise or fall rapidly in the short term, it significantly impacts terminal consumer demand and the profits of leading companies. Risks associated with insufficient domestic consumer purchasing power leading to pressure on brand sales: If domestic retail trends face pressure and consumer purchasing power remains weak, it will affect brand sales performance. Rapid changes in craftsmanship and fashion trends that brands do not keep pace with will affect sales performance.