DEA shares (301177)
Main points:
DEA shares: a new diamond ring giant driven by brand marketing.
DEA Co., Ltd. is a new diamond jewelry giant established in 2010, formerly known as management consulting company, with consulting service gene. The company's main marriage proposal diamond ring and marriage ring account for 75.8% and 22.5% of the revenue in 2021h1 respectively. In 2020, the revenue / net profit attributable to the parent company will be RMB 2.46/560 billion, yoy + 47.3% / 113.4%. In terms of growth drive, we believe that different from the general channel drive in the industry, DEA relies on brand marketing to drive growth, With the extremely restrained brand and marketing concept ("men can only customize one in their life"), the strengthened diamond wedding ring symbolizes "eternal and unique" The added value of diamond wedding rings is consistent with the product characteristics of low consumption frequency and high customer unit price, so as to increase the brand segmentation, sacrifice the repurchase rate in exchange for high user transformation, screen young consumer groups with the same values, and form high user transformation. The number of single purchase accounts for 96.2% in 2021h1. In terms of customer base structure, the product is targeted at the millennial generation and Z generation groups. In 2020, the income of users under the age of 29 will account for 70.8%. With the adjustment of the company's publicity channel structure in 2020, the proportion of low diamond bigamy ring sales among young customers has expanded, and the average price has decreased. The proportion of wedding ring sales below RMB 20.21h1 million accounts for 74.2%, and the income accounts for 35%, of which the average sales price below RMB 10000 is only RMB 3700, which is + 15.1pcts / - 28.7% respectively compared with that in 2020; Financial analysis: we believe that the company relies on the differentiated brand concept to create an effective segmentation + customization and outsourcing mode, improve product profit space + strong channel self operated terminal control ability, and the three are highly consistent with product characteristics, so as to continuously lead the profitability of the industry. In 2020, the company's gross profit margin / net profit margin was 69.4% / 22.9%. Superimposed with high total asset turnover and equity multiplier, roe level ranks first in jewelry industry for a long time. The company's roe in 2020 is 63%, far exceeding the second ranked Lao Feng Xiang Co.Ltd(600612) (21.2%).
The market is worried about the sustainability of the company's brand marketing driven growth model, We try to analyze its growth rationality in multiple dimensions: (1) mode fit: adopt customized sales and outsourcing processing mode. The non-standard attribute of products under the customization mode is conducive to highlighting the scarcity and uniqueness of products and strengthening the brand concept. At the same time, the company can better collect consumer needs and feedback and respond to consumer preferences and diversified needs in a timely manner (high sensitivity to market demand). (2) channel fit: as of June 2021, the company had 375 self operated stores (300 + true love experience stores), an increase of 50% over the end of 2018, distributed in high-speed cities in East China. The company achieved o2o integrated development by building a multi-level sales channel platform (online self built website + offline direct sales + opening experience stores) and opened Wuxi Online Offline Communication Information Technology Co.Ltd(300959) Channel data collection can form unique information system advantages. In addition, under the direct marketing mode, it is convenient for the company to uniformly price, manage and operate all stores, so as to shape the brand image. We believe that the company's opening of offline experience stores is essentially to explore the new retail transformation from "B2C" to "c2s2m", To achieve efficient consumer touch (demand insight). (3) brand fit: the main brand Dr contributes 99.9% of revenue, and the new brand storymark adopts a more personalized "exclusive customization" series (high magnification), with a higher lower limit of price band. The lower limit of price of onlylove series is 14000 yuan. We believe that the sub brand is more flexible and personalized "exclusive customization mode" It is expected to give its products higher added value and greater premium space (the fixed rate increases in turn with functionality → customization → exclusive customization). With the intergenerational replacement of consumer groups and the rise of personalized consumption, it may have greater development space in the future.
On the development trend and new opportunities of diamond jewelry under the new retail background from the perspective of "people, goods and market"
There is a 70 billion stock market of diamond jewelry in China, and the share of marriage and love diamond jewelry is about 75%. Looking back on the development process of diamond wedding rings in Japan and the United States, after the per capita GDP exceeded US $5000, diamond wedding rings rapidly penetrated. China's per capita GDP exceeded US $million in 2019. However, according to the government work report, there are still 610 million people with a monthly income of less than 1000 yuan. At present, 47% of China's diamond wedding ring penetration still has room for growth compared with more than 55% in the United States and Japan. We believe that the development of diamond jewelry brand under the new retail background is affected by three factors (1) "people": "G2 upper middle class" Lead the diamond consumption trend. The diamond penetration rate in China's third and fourth tier cities is only 37%, which is a big gap compared with 61% in first tier cities. Under the background of common prosperity in the future, the accelerated rise of the middle class in low-level cities is expected to drive the increase of diamond penetration, bring new increment of marriage diamonds and hedge the adverse impact of the decline in the number of marriages. According to McKinsey's prediction, the proportion of middle class in China's third and fourth tier cities will expand from 17% to 39% from 2002 to 2022. On the other hand, with the young upper middle class gradually becoming the main force of diamond jewelry consumption, diamond jewelry shows a new consumption trend of being loyal to the brand, paying attention to experience, increasing personalized and customized demand, and relying on the Internet to "grow grass". In this context, the emerging diamond brands that are differentiated, customized and driven by brand marketing are expected to usher in development opportunities. (2) "Goods" : the trend of jewelry consumption branding is prominent, and the preference for customization of wedding rings is increasing. Diamond wedding rings have the product characteristics of low purchase frequency + high customer unit price and the added significance of symbolizing romantic love. Brand endorsement can reduce the high pre purchase retrieval cost. Therefore, jewelry brands supported by brand culture or brand stories are recognized by jewelry consumers of different ages. On the other hand, as the post-90s enter the marriageable age, their personalized consumption preferences promote the customization trend of diamond wedding rings; (3) "Field" : short term Mau improves and supports the cost-effectiveness ratio of short video marketing, and the industry has entered the stage of fine content operation. Compared with traditional e-commerce, the live broadcast with goods can more fully display jewelry + anchor endorsement is conducive to eliminate information asymmetry, and the scale and proportion of jewelry e-commerce channels continue to grow. In 2020, the trading scale of jewelry e-commerce increased by 41.2% year-on-year to 67.95 billion yuan, accounting for 10.5%. For diamond jewelry, online plays the role of commodity display, brand marketing and offline drainage. With the migration of traffic from mobile Internet to short video or approaching saturation (penetration rate of 74.5% in 2020), we believe that the short-term Mau will improve and support the cost-effectiveness ratio of short video, and the long-term short video industry will transition from extensive resource investment to competition and fine content operation. Consumers have higher access efficiency (more accurate demand connection), o2o integration and omni-channel marketing (online marketing leads offline or offline experience leads online) jewelry brands are expected to continue to benefit.
Decrypt Dr contrarian growth: differentiation concept + fine operation enable brand value under DTC mode
(1) Differentiation breaking: the company creates "unique in life" and "exclusive customization" The concept of differentiation and the model of brand marketing driven growth are adopted. The performance is jointly affected by brand communication and store construction. Therefore, it has strong toughness and has achieved contrarian growth during the epidemic. In 2020, the revenue increased by 48.1% year-on-year, and the number of stores at the end of the year was 353, with a year-on-year increase of 16.9%. We believe that the essence of brand driven is the innovation of DTC model, and dia multi-dimensional reproduces the success path of DTC model. Looking to the future, DEA's adoption of DTC model is expected to achieve sustainable low-cost consumer reach by reducing intermediate channels (efficient consumer screening + accurate demand identification, while traditional channels have poor consumer screening efficiency and demand identification ability). The advantages of sustainability may be embodied in faster response to customer demand, helping the market sink and improving consumer experience. (2) Marketing out of the circle: the company takes the lead in increasing the short video marketing layout to achieve low-cost user access. In terms of resource investment, the company undertakes short video traffic dividends. Since 2020, by adjusting the promotion structure, the company has increased the short video brand with high cost-effectiveness ratio Tiktok Kwai (promotion channel investment increased from 2.3% in 2019 to 25.2% in 2020), successfully achieved low cost consumers touch, and the single click cost dropped from 2.32 yuan / month in 2018 to 0.45 yuan in 2020. The marketing effect increased rapidly. The growth of clicks in e-commerce video content and e-commerce platform in 2020 was 931.3%/97.4, and the topic of heat, voice and Baidu was still on the high side. Continue to improve. (3) Brand building: from the perspective of the whole cycle of consumers' purchase of products, brand, marketing and products are used to reduce consumers' "before purchase", "during purchase" and "after purchase" Cost. DEA has the ability of fine content operation to effectively improve the user touch rate. The company's 2021h1 video media channel received 25.538 million praise times, and Hengxin Xili, which received the most praise times among comparable companies, received 2.207 million praise times. The number of fans on multiple platforms is growing, the traffic conversion advantage is significant, and the number of fans on each platform is in the leading position in the industry. As of June 2021, the number of social network / video media fans was 404.9/206.6, far exceeding that of comparable companies. In terms of store efficiency, from 5.04 million yuan / home in 2019 to 6.3 million yuan / home in 2020, with a year-on-year increase of 25%, and the offline revenue increased significantly by 46.2% to 22.251 million yuan. Diamond wedding ring high customer unit price The characteristics of low consumption frequency make consumers have higher pre purchase touch cost (for example, the time cost of product selection), so brand endorsement is urgently needed compared with other consumer goods. In the long run, jewelry consumption still needs offline scene expansion. Therefore, the company went public to raise funds, improve the offline channel layout, help improve the brand power and reduce consumers' pre purchase costs. This listing raised 740 million yuan (57.6%) is used to improve the offline channel layout, which is expected to further enhance the brand influence.
Investment advice
Diamond wedding rings driven by brand marketing are scarce targets, with consulting service genes. DTC mode is a successful model in the jewelry field. With the mode, channel, concept highly consistent with product characteristics, roe level has led the industry for a long time. We believe that in the context of the slowdown in the cost-effectiveness ratio of short video marketing, DEA is expected to reproduce the successful path of DTC mode and achieve sustainable low-cost consumer reach by virtue of its fine content operation ability and reducing intermediate channels. At the same time, significant brand differentiation is expected to bring sustained high user transformation by screening groups with the same values. It is estimated that from 2021 to 2023, the net profit attributable to the parent company will be 1.33/18.7/2.33 billion yuan, and the EPS will be 3.3/4.7/5.8 yuan respectively, corresponding to 45 / 32 / 26 times of the current share price PE, which is covered with the "buy" rating for the first time. Give the company 47xpe in 2022, corresponding to a total market value of RMB 88.078 billion.
Risk statement
The follow-up brand marketing effect did not meet expectations, the competition in the wedding diamond market intensified, the development of offline stores was less than expected, and other jewelry brands followed suit, resulting in reduced brand differentiation and reduced user conversion.
