JPM-Laopu Gold-H Positive profit alert-20250728

Laopu announced a positive profit alert on 27 Jul, with its 1H25revenue up 241-255% to Rmb12-12.5bn and earnings up 279-288% toRmb2.23-2.28bn (in-line with market expectation of Rmb2.1-2.3bn).This strong growth was attributed to: 1) elevating brand equity withexpanding customer bases (for example, followers onTmall/RedNote/Douyin +27%/+67%/62% in 1H25); 2) continuingoptimization, promotion, iteration and innovation in product offerings,such as innovative craftsmanship gold lacquer ( 金胎漆器 ), enamelhulu series, Singapore-only Cross Pendants, etc. What’s moreencouraging is that the solid boutique expansion in 1H25 (incl. 5 newboutiques and 1 boutique refreshment) did not materialize in 1H25results, and will contribute in 2H. The new boutiques showed strongmomentum during the opening promotions (see our channel checks inShanghai GG66 boutique and Singapore MBS boutique), with optimalcustomer profile, robust traffic and sales. Thus, we expect thismomentum to continue in 2H25, driven by Laopu’s brand equity,product innovation and strong value proposition in a market that valuesnational pride. We remain confident on Laopu’s growth visibility amidoverall consumption uncertainty. Near-term catalysts would be: 1) newstore openings; and 2) likely MSCI China index inclusion. Our Dec-25PT of HK$1,249 implies 41x/30x 2025E/26E P/E. Reiterate OW.

Breakthrough in channels in 2025: 1) At least eight new boutiques in2025 (vs seven in 2024), including three in the pipeline (such as HongKong IFC and Shanghai Xintiandi) and five opened (e.g., ShanghaiGrand Gateway 66, strong traffic and no cannibalization noted, see ourchannel checks; Singapore Marina Bay Sands, see our channel checks;Shanghai IFC; Shenzhen Bay MixC); 2) refresh of existing boutiques tocontinue in 2025 (not less than 2024’s level of four); 3) in the long term,qualified shopping malls in the mainland + Hong Kong & Macau SARsfor Laopu would be c50, almost double the current level (26 as of 2024).

We expect Laopu’s momentum to continue in 2H25. We expect 2025top-line growth of 178%, driven by strong SSG (JPMe: +130% yoy),and solid store expansion (JPMe: +25% yoy). We expect 2025 earningsto rise 211%. This indicates 2.0ppt net margin expansion, given 3.5pptdecrease in the opex-to-sales ratio, due to operating leverage, offsetting0.9ppt GPM contraction due to the price increase in raw materials(mainly gold). We raised our 25-27E earnings estimates by 2-10%,given the robust performance of new boutiques, which should contributemore in 2H.