Mainland gold jewelry jeweller Chow Liufu has hit listing for the fifth time in the past six years. He failed to apply for A-shares three times, reflecting that his IPO journey has been frequently blocked. Now he has finally passed the listing hearing on the Hong Kong Stock Exchange. CICC and CITIC Construction Investment International are its joint sponsors, and it also said that it plans to raise US$100 million to US$200 million (about HK$780 million to HK$1.56 billion). Can it challenge the industry leader Chow Tai Fook (1929.HK) in the future?
It is worth noting that Chow Sat Fook was founded in 2004. It quickly became famous because it was only one word different from Chow Tai Fook, which had a history of nearly a hundred years. However, it was caught in multiple trademark infringement disputes, and the high proportion of revenue of the franchise model it relies on, which made its listing prospects questioned.
Chow Tai Fook makes a lot of profits, Chow Sat Fu wins is growing
The gold price has risen in recent years, and last week it broke through the $3,400 per ounce mark, indirectly causing a sharp decline in demand for gold jewelry, and the performance of many chain gold shops has also been affected. However, according to Chow Sat Fook's updated prospectus, in 2022, 2023 and 2024, the revenue was RMB 3.102 billion, RMB 5.15 billion and RMB 5.718 billion respectively; profits during the same period also reached RMB 575 million, RMB 660 million and RMB 706 million respectively, achieving counter-market growth.
▲Chow Tai Fook achieved counter-market growth.
In contrast, as of the end of September last year, Chow Tai Fook's interim turnover fell 20.4% year-on-year to 39.408 billion yuan, and its profit fell 44.4% year-on-year to 2.53 billion yuan. Among them, the turnover of Chow Tai Fook gold jewelry and products fell by 21.6% year-on-year, jewelry inlay, platinum and K gold jewelry fell by 20%, and watches fell by 12.5%. As for the mainland, as the main market of Chow Tai Fook, its turnover also fell 18.8% year-on-year to 33.031 billion yuan, while the turnover of Hong Kong, Macau and other markets fell 27.9% to 6.377 billion yuan.
Franchise stores have high dependence on 98% of the stores are not self-operated
In terms of stores, the total number of Chow Sat Fook's offline sales online stores as of the end of last year was 4,129, of which 4,034 or nearly 98% were franchise stores; as for the mainland stores, there were 4,125 stores and 4 franchise stores overseas. According to the number of stores in China, Chow Sat Fook ranked fifth among Chinese jewelry brands in 2024, down one place from 2023. The group also stated that it plans to open 12 new self-operated stores this year, 13 in 2026 and 15 in 2027, and a total of 40 new self-operated stores will be opened.
In terms of Chow Tai Fook, as of the end of September last year, the total number of stores around the world was about 7,500, of which 6,968 retail outlets in the mainland, about 77% of which were franchise stores. However, against the backdrop of rising gold prices, both adopted a strategy of closing stores and slimming down due to high operating pressure. Chow Sat Fook closed 674 franchise stores last year; Chow Tai Fook also closed 239 jewelry retail outlets in the mainland within half a year.
The gross profit margin on Saturday fell far below Chow Tai Fook
In fact, the rapid growth of Chow Sat Fook's business relies on the franchise store model, which brings it high profit margins, but it also traps it in various disputes due to inadequate management of franchisees and a decline in gross profit margins. From 2022 to 2024, the gross profit generated by Chow Sat Fook's service fee collection from franchisees was RMB 747.6 million, RMB 760.5 million and RMB 801.4 million, respectively, which part of the gross profit margin brought to the brand by nearly 100%. However, from 2022 to 2024, Chow Tai Fook's gross profit margin continued to decline, recording 38.7%, 26.2% and 25.9% respectively.
It is worth mentioning that Chow Sat-Fu also mentioned in his prospectus that the store network is mainly composed of franchisees and has limited control over it, and franchisees may involve intellectual property infringement claims and incur high defense fees, disrupting the group's business.
Although the franchise store model is also one of the ways Chow Tai Fook expands its market. However, Chow Tai Fook's gross profit margin increased by 6.5 percentage points to 31.4% in interim results. The group said that the increase in gross profit margin was mainly due to the soaring gold price, which improved the gross profit margin of retail products and increased the contribution of pricing gold products. It is understood that Chow Tai Fook has also launched a product portfolio with different positioning, which has made the sales of priced gold products strong, and its contribution to the retail value of gold jewelry and product categories increased by 100% to 14.2% year-on-year, and accounted for about 15% to 18% of the group's overall gold product sales.
