Lao Fengxiang (600612) 2019 Third Quarterly Report Review: Opening Stores to Accelerate and Defend Expansion, Third Quarter Performance Exceeds Expectations

Lao Fengxiang (600612) 2019 Third Quarterly Report Review: Opening Stores to Accelerate and Defend Expansion, Third Quarter Performance Exceeds Expectations
Core point of view Lao Fengxiang’s Q3 store opening speeded up, and the revenue / profit growth rate exceeded expectations, fully showing the potential growth of the leading companies.The operations of the gold and jewellery companies are clearly differentiated, and the industry investment focus is on leading companies to expand opportunities.Lao Fengxiang has brand, channel and product advantages, and the reform of state-owned enterprises is expected to continue to improve corporate governance and continue to lead the industry’s growth potential.We raise our target price to 61 yuan and maintain a “Buy” rating.   Store opening speeded up and single-quarter performance grew faster than expected.Lao Fengxiang announced three quarterly reports, accumulative income of 421 in Q1-Q3 2019.30,000 yuan (+15 compared with the same period last year).4%), net profit attributable to mother 11.70,000 yuan (+18.0%), in which the single quarter revenue / net profit in Q3 2019 increased by 24 per year.6% / 26.3%, exceeding expectations.Mainly due to the significantly accelerated store opening this quarter, a net increase of 133 stores in the single quarter (net increase of 68 in 2019H1) to 3,722, and Xinxin stores merged franchise stores (directly operated outlets remained unchanged 139), franchise stores led to synchronous increase in revenue and profits.   The upward movement of gold price has led to an increase in gross profit margin. After excluding gold hedging, the net profit margin increased slightly.Single-quarter gross margin for the third quarter of 20198.97%, increasing by 0 every year.49pct, the rise of the physical cash price contributed positively to the company’s gross profit.However, the hedging of gold inventories led to a net investment margin of 1 in Q3.7.6 billion (another 224.5 million fair value change positive income), after excluding, it is estimated that the actual gross profit margin of the gold and jewelry business is basically stable.At the same time, Q3’s single season expenses were stable (sales and management expense ratio of 2.43%, a slight increase of 0 a year.07pct; financial expense ratio is 0.44%, a slight decrease of 0 every year.02pct), resulting in a single quarter net profit margin of 3.04%, a slight increase of 0 a year.04 points.   Expansion and acceleration led to an increase in accounts receivable and a decrease in net operating cash in a single quarter.800 million.The acceleration of expansion has accompanied the company’s increased support for franchisees’ funds. In Q3, accounts receivable in the single quarter increased by 33 to 40 net sequentially.80,000 yuan (VS 2018Q3 is 33.At the same time, the stock price should be increased in response to the upward price of gold, and the net inventory at the end of the period increased by 5 quarter-on-quarter.100 million to 81.600 million (VS 2018Q3 inventory decreased by 2 compared with the previous quarter.500 million to 66.300 million).Consider the company’s sufficient cash reserves (2019Q3 book cash 52.We believe that Lao Fengxiang will further support franchisees, maintain a high expansion rate, and seize the market share.   Risk factors: Weak consumption and weak demand for gold and jewellery; 北京养生会所 the country’s improvement is lower than expected.   Investment suggestion: The scale of the gold and jewelry industry will increase at a rapid rate, but the business differentiation between the companies is obvious. The focus of industry investment is on the leading companies’ opportunities for improvement.Lao Fengxiang has brand, channel and product advantages, and state-owned enterprise reform is expected to continue to improve corporate governance, thereby further leading the industry’s growth potential.Considering the faster-than-expected speed of opening a store, we raised our 2019-2021 revenue forecast to 500.800 million / 563.200 million / 626.9 trillion (previous forecast was 478.100 million / 526.900 million / 581.700 million); raised EPS forecast for 2019-2021 to 2.67/3.07/3.45 yuan (previous forecast was 2).58/2.95/3杭州夜网.38 yuan).Taking into account the evaluation switch and the company’s industry leader size, the company was given a 20xPE estimate in 2020, raising its target price to 61 yuan and maintaining a “buy” rating.