MS-Laopu Gold 1H25 Profit Alert ：In-line-20250727

The stock price has corrected 29% from its peak in early July. We understand thatbuy-side expectations for interim results had been reduced from initial highexpectations of >Rmb2.5bn. Investors are increasingly concerned about Laopu'smargin pressure given gold price hikes. Operational expenses should already bequite efficient, so gross margin is becoming more important for NPM expansion,especially from 2H25+.

Gold price rose ~15% from February to April and has been relatively stable since.Laopu has a practice of raising retail prices once every half year ( Exhibit 2 ). Thus,the pricing strategy in 2H25 is important - 1) if it raises prices by <10%, marginpressure may persist; 2) if it raises by >10%, there could be risks to volume demandunless it launches new popular products.

Even though we believe the robust demand growth is a result of brands' power andcompany execution, we highlight that the YoY comp base is even higher for 2H25.We also observe strong correlations among gold prices, demand growth and thestock price thus far ( Exhibit 3 ). The stock has not really experienced a prolongedstable gold price environment, not to mention a down-cycle, which might risk tovaluation multiple, in our view.