DEA shares (301177)
Summary of this issue:
China’s leading wedding diamond brand has seen rapid growth in revenue and performance over the past 20 years. The company was founded in 2010, mainly engaged in Dr brand, and customized high-quality proposal diamond rings, wedding rings and other diamond accessories for marriage and love people. Zhang Guotao and Lu Yiwen, the actual controllers and persons acting in concert of the company, jointly held 98.25% of the shares of the company before listing, with highly concentrated equity. The core senior management team obtained certain equity before listing, and the team was stable and fully motivated. The actual issued share capital is 40.01 million shares, accounting for 10% of the total share capital after issuance, including 3.546 million shares through strategic placement, accounting for 8.86% of the total share capital issued. After deducting the issuance expenses, the raised funds are 4.444 billion yuan. In 2020, the company’s revenue and net profit attributable to the parent company were 2.465 billion yuan and 563 million yuan respectively, with a year-on-year growth rate of 48% and 113% respectively, and a compound growth rate of 30% and 31% respectively in 17-20 years. The company’s revenue performance increased rapidly; In the first three quarters of 21 years, the year-on-year growth rate of revenue performance reached 128% and 218% respectively. Over the past 20 years, due to the improvement of store floor efficiency, the revenue performance has accelerated, and the net interest rate has been continuously optimized.
Proposal diamond ring products contribute to the main revenue. Over the past 20 years, the output of a single store has increased, and the profitability of the store is good. The company adopts the sales mode of customization, the products below 0.03 carat are purchased uniformly, outsourced for processing and production, and the asset light operation mode is adopted. From the product dimension: 1) the proposal diamond ring products contribute the main income, and the gross profit margin is stable. The 20-year income accounts for 76.3%, and the gross profit margin is 70.8%. The proportion of marriage ring products increases, and the 20-year gross profit margin drops to 67.1% affected by the gold price; 2) The overall revenue is mainly driven by sales volume, and the trend of unit price increase is not significant. From the channel dimension: 1) offline store sales are dominant, accounting for 90.9% of the revenue in 20 years, and the compound growth rate in 18-20 years is 29.3%; Online channels are dominated by tmall, official website and other sales, maintaining a compound growth rate of 17.4% in 18-20 years; 2) The number of stores has increased rapidly since 17 years, with a compound growth rate of 54.5% from 17 to 20 years, and the number of stores reached 375 at the end of 21h1; Over the past 20 years, benefiting from the good marketing effect, the gradual climbing of new stores and the reduction of store diversion effect, the output of single stores has gradually increased, and the output of single stores in 21h1 is 5.67 million / the first half of the year; 3) The profitability of offline stores is good. Considering only rent decoration, salesperson salary and marketing expenses, the average profit margin of a single store in 18-20 years is 38%, and 21h1 benefits from the improvement of floor efficiency by 50%.
The increase of penetration has become an important driving force for the growth of the diamond market. The industry concentration is low, and the head brand is expected to increase the market share. According to De Beers’ diamond industry insight report, the scale of China’s diamond market in 2019 was about 68.7 billion yuan, with a compound growth rate of 2.6% in 13-19 years. The industry entered a stage of low-speed and stable development. The number of marriage registration has decreased year by year, affecting the consumption of wedding diamonds, and the increase of penetration has become an important driving force of the industry; On the one hand, the number of marriage registrations in China was 8.13 million in 2020, a decrease of 12.3% year by year since 13 years, and the shrinking population base has affected diamond consumption to a certain extent. On the other hand, the proportion of Chinese newlyweds buying diamond rings increased by 47% in 2017, which still has room to improve compared with 70% and 60% respectively in the developed markets of the United States and Japan. According to Euromonitor consulting, the competition pattern of jewelry is scattered, and the share of head brands has increased steadily. In 2019, CR10 was only 22.7%, 5.2pct higher than that in 2015. Professional diamond brands are expected to increase their market share by relying on differentiated competition strategy and steady expansion strategy. Measured by revenue / industry scale, the company’s diamond market share will reach 3.5% in 2020, an increase of 1.8pct over 17 years; Measured by the number of customers / logarithm of marriage registration, the company’s share of 21h1 can reach 6.5%, an increase of 5.3pct over 18 years.
Unique brand concept, flexible traffic operation, innovative sales model and build competitive barriers. We believe that the company’s competitive advantage is reflected in three aspects: 1) with the unique concept of “only one can be customized in a man’s life” to “only love one person in a man’s life”, improve the brand differentiation, bind the user’s emotion, establish the brand mind, and highlight a certain brand premium. The company’s carat price is at a high level in the industry. Take the 20-year self operated channel mosaic gross profit margin as an example, The company’s gross profit is higher than Chow Tai Seng Jewellery Company Limited(002867) , Leysen Jewelry Inc(603900) 7pct or above; 2) be good at capturing the trend of traffic flow, promoting the efficient market promotion for offline stores, focusing on social media delivery such as micro-blog Xiaohong tiktok in 18-19 years, and increasing the short video media distribution such as trembling in 20 years. The new media platform has made 1 billion 700 million super topics, and three micro and one shaking platform has been running about 12 million 940 thousand of the powder yarn, helping young users get access to the next line store and improve the efficiency of the offline stores. 3) The pure direct sales mode ensures the user experience. The customized sales mode provides customers with diversified choices while realizing low inventory and high turnover. The number of inventory turnover in 20 years is 2.9, which is far lower than the level of the same industry.
The capital helps the steady expansion of stores and the continuous enrichment of products, so as to promote the future growth of the company. In the future, the company is expected to continue to increase its market share in the diamond market. We believe that the growth driving forces are as follows: 1) capital helps store expansion and the profitability of efficient store model is guaranteed; According to the company’s plan, it is planned to invest 740 million yuan to open 238 stores in the next three years. It is estimated that t + 1, t + 2 In T + 3, 78 (about 8200 square meters), 80 (about 8800 square meters) and 80 will be built respectively (about 8800 square meters), referring to the 21h1 floor efficiency level, the newly added stores can bring in 3.34 billion yuan of revenue under mature operation, which is expected to quickly increase the company’s market share; at the same time, the company’s historical stores have a better profitability, compared with the number of stores in the same industry and the raised funds, the actual opening space is wider, and the opening of stores in the future can be expected. 2) push new stores to improve the joint and several rate of proposed diamond ring products; to Taking the sales volume / marriage registration logarithm as an example, the market share of the company’s diamond proposal ring in the past 20 years has reached 2.1%, an increase of 0.9pct compared with that in the past 18 years, showing a steady improvement in the market position. In the same period, the sales proportion of wedding ring / diamond proposal ring is only 0.42, and it is expected to improve the joint rate of other products through strong categories in the future; Over the past 18 years, the company has continuously strengthened its internal design and continued to promote innovation, which is expected to drive product sales.
Profit forecast and investment rating: we expect the company’s revenue from 2021 to 2023 to be 4.59 billion yuan, 6.33 billion yuan and 8.43 billion yuan respectively, with a year-on-year growth rate of 86.2%, 37.8% and 33.3% respectively; From 2021 to 2023, the net profit attributable to the parent company was 1.34 billion yuan / 1.86 billion yuan / 2.43 billion yuan respectively, with a corresponding growth rate of 138.6% / 38.2% / 30.5%. With reference to the issuance pricing, the company’s valuation from 2021 to 2023 was 34.9 times, 25.1 times and 19.2 times respectively; According to the unanimous expectation of wind, the valuations of comparable companies in the same industry, Chow Tai Fook, Mclon Jewellery Co.Ltd(300945) , China National Gold Group Gold Jewellery Co.Ltd(600916) 21-23, are 32.6 times, 26.4 times and 22.1 times respectively. Considering that the company is a leading brand in the market segment and opening stores will contribute to high growth in the future, it is recommended to pay active attention.
Stock price catalyst: the scene of wedding diamond market continues to improve; The company’s store expansion is smooth, the output of single store is steadily improved, and the high profit margin is maintained; The joint rate of diamond ring products has been improved, and the multi category layout has been extended smoothly.
Risk factors: the risk of the decline of the scene bearing of the wedding diamond market; Wedding diamond market competition intensifies the risk; Store development is less than expected risk; Innovative ideas are imitated and copied, which will affect the brand power risk.
