DEA shares (301177)
For more than ten years, we have built a brand of diamond inlaid jewelry for marriage and love, and created brand segmentation with unique business philosophy. DEA Co., Ltd., formerly known as dairui Co., Ltd., was established in 2010. The company mainly adopts the business model of self-supporting and customized sales, and is committed to brand construction, channel expansion, product R & D and supply chain integration of DR and other private brands. Through years of unremitting efforts, Dr brand has prominent market influence and has become a proposal diamond ring brand with strong market competitiveness.
The demand potential of the jewelry industry is large, and the industry concentration continues to improve. The continued economic recovery will inhibit the release of demand. It is expected that China’s jewelry market will exceed 760 billion in 2021. There is enough room for industry concentration to improve, and the trend of brand competition is obvious. According to Euromonitor International, in 2020, the jewelry industry by brand Cr5 is 21.0% and CR10 is 24.9%. There is still much room to improve the industry concentration. Jewelry consumption in the wedding market occupies an important position in the whole jewelry market. Compared with developed countries, China’s per capita diamond demand still has greater room for growth.
The company’s competitive advantages lie in: 1) endowing the brand with emotional connotation, which is in line with the love people’s pursuit of love specificity. The company distinguishes itself from competitors by the purchase rule of “men can only customize one in their life”, and transmits the consumption concept of “only give one person in their life”, so as to meet the emotional needs of marriage and love people for exclusive love. 2) Open up Wuxi Online Offline Communication Information Technology Co.Ltd(300959) data channel, multi-channel marketing and integrated sales. The company’s online channel fan management and marketing ability is outstanding. Tiktok has more than 20 million fans in micro-blog, WeChat, Jo, hi, Xiao Hong and other famous Internet platforms up to now. Kwai DR has more than 100 fans. The fully self operated mode of offline stores realizes high gross profit. Set up a dedicated area for marriage proposal, provide value-added services such as marriage proposal planning, and sign a true love agreement to create a sense of ceremony. 3) Products to meet the wedding needs, high gross profit and high turnover to promote sales growth. The company’s main products are proposal diamond rings, wedding rings and other accessories, mainly to meet the needs of wedding ceremonies or occasions. The overall sales volume of the company still maintained a good trend, and the product sales volume continued to grow. The gross profit margin of products is maintained at about 70%. In the first half of 2021, the average inventory of brand stores is 1026100 yuan, and the inventory turnover rate is 2.00 times, which is better than that of comparable companies.
The company’s revenue is growing rapidly, with strong profitability, high profit quality and good cash flow, reflecting strong profitability and expansion intention of its main business. From 2018 to 2021h1, the operating revenue was RMB 1.500/16.65/26.64/2.320 billion respectively, with a same increase of 34.27% / 10.96% / 48.06% / 177.68%. The gross profit margin remained stable at about 70%, and the parent net profit margin continued to rise. The ratio of net operating cash flow to net profit has remained above 1 since 2019, with high profit quality.
Investment suggestion: the wedding diamond market has a broad track, and there are still incremental, non wedding diamond may become the next growth point. At the same time, the company continues to strengthen the construction of marketing channels, actively convey the brand concept to consumers, and establish brand differentiation in the hearts of consumers; Further strengthen jewelry creative design, plan to cooperate with multiple IP to form brand recognition and improve brand tone. Therefore, we predict that the net profit attributable to the parent company from 2021 to 2023 will be RMB 1.279/18.45/2441 billion, with a corresponding growth rate of 127.1% / 44.2% / 32.3%. Considering the 30-35 times relative PE valuation in 2022, the corresponding total target market value in 2022 is about 55.35-64.58 billion yuan, and the corresponding target price is 138.4-161.4 yuan, giving a “buy” rating.
Risk tips: risk of declining brand influence, pressure on single store income, improper publicity risk, outsourcing production risk, difference risk of valuation systems in different markets, risk of stock price fluctuation in the short term
