DEA shares (301177)
Key investment points:
The company’s brand concept builds strong barriers and directly attacks the exclusive core attribute of love. The essence of diamond wedding consumption is to buy widely recognized value symbols and reduce the uncertainty of love. DR is a jewelry company mainly engaged in wedding diamond rings. Through “men can only customize one in their life”, Dr implements the attribute of unique and exclusive love, caters to the pain point that love is uncertain and difficult to verify, quickly occupies consumers’ cognition and forms a super barrier. Seizing the opportunity of wedding demand outbreak and short video outbreak after the epidemic, the company rapidly expanded its brand influence through marketing and drove into the fast lane of growth.
With the increase of penetration and consumption unit price, the industry has broad growth space, and the concentration still needs to be improved. 1) The industry has broad growth space. From the perspective of penetration, the penetration rate of diamond wedding in China in 2017 was 47%, which still has enough room for improvement compared with 60% / 75% in Japan / the United States in the same period. As the millennials who prefer diamonds become the main force of wedding consumption, the penetration rate will increase. From the perspective of consumption unit price, the average price of wedding rings in China in 2018 was only $900, which was significantly lower than that of $3500 / 3400 in Japan / the United States in the same period. 2) The pattern continues to focus on the head brand. The brand barrier of diamond jewelry industry is obvious, and the concentration is increasing. At present, the market concentration of China’s jewelry industry is low and will continue to improve in the future.
The growth logic is long, and there is enough room to improve store opening and market share. 1) From the perspective of store opening, the company’s single store model is excellent, the initial investment is low, the investment payback period is only half a year to one year, and the profitability is strong. According to the calculation of store opening potential of cities at different levels, the company has about 1028-1601 stores, still 1.7-3.3 times; 2) From the perspective of market share improvement, the market share of sales revenue is only 3.59%. From the static perspective, 10% – 18% of the more mature market still has 2-4 times the market share improvement space; The number of registered marriages accounted for 5.45%, and the income scale had 2.36/3.20 times growth space from a static perspective.
Positioning China’s second echelon diamond decoration brand, undertaking consumption upgrading dividends, with a good competition pattern. From the perspective of price band, the company locates China’s second echelon diamond brand, and the price is slightly higher than that of mass brands, but there is a large gap with Tiffany and Cartier of the first echelon, which can just meet the demand for consumption upgrading. Moreover, there are few competitors in the same price band, the company’s brand strength is at the leading level in the same price band, and the competitive environment is relatively mild.
The direct marketing + customization model brings high yield and small downward space for profitability. Thanks to the full direct sales model and a certain brand premium, the gross profit margin of products is significantly higher than that of peers. At the same time, the customized sales model brings high inventory turnover rate and excellent roe performance. Considering that high gross profit products will still be used in large quantities in the future, and with the growth of store opening and revenue scale, most rigid expenses will be further amortized, and there is still room to improve profitability.
Profit forecast and investment rating: from 2021 to 2023, the company is expected to achieve an operating revenue of RMB 5.188/6.967/8.918 billion, with a year-on-year increase of 111% / 34% / 28%; The net profit attributable to the parent company was 1.308/1.836/2.456 billion yuan, with a year-on-year increase of 132% / 40% / 34%; The corresponding valuation is 55.49/39.55/29.57xpe. For the first time, give a “buy” rating.
Risk tip: repeated outbreaks lead to weak offline optional consumption; The company’s store expansion was not as expected; Industry competition intensifies; Brand concept may be imitated by competitors; Risk of consumer identity information disclosure; Chinese mainland and China Hongkong and international market are not completely comparable, and the relevant information and data are for reference only.
