Benchmarking against top luxury brands? LAOPU GOLD's market value surged nearly HKD 5 billion on its IPO debut

In "Store King" SKP, LAOPU GOLD (6181.HK), which is neighbors with top luxury jewelry brands like Cartier, was warmly welcomed by the secondary market as soon as it went public.

On June 28, LAOPU GOLD officially debuted on the Hong Kong stock market, soaring over 80% intraday and closing up 72.84% at HKD 70 per share, with a market value increasing by nearly HKD 5 billion in a day, approaching the valuation volume of the final round of financing before listing.

Prior to the IPO, LAOPU GOLD completed a Pre-IPO financing round in November 2023, with a post-investment valuation of 5.225 billion yuan and a PE ratio of 12.56.

In the November 2023 Pre-IPO round, among the investors in LAOPU GOLD, Black Ant Capital subscribed for 2.66 million shares of LAOPU GOLD for 97 million yuan, accounting for 1.86% of the total share capital; Suzhou Yimochuangye Investment Partnership Enterprise (Limited Partnership) under Yuyuan Stock (600655.SH) and Hangzhou Fuxing Hanxing Equity Investment Fund Partnership Enterprise (Limited Partnership) collectively subscribed for 3.49 million shares for 128 million yuan, accounting for 2.45% of the total share capital.

Based on the Pre-IPO financing cost of 36.63 yuan per share (approximately HKD 39.36 per share), it is roughly estimated that the return on the first day of listing for investors such as Black Ant Capital has exceeded 80%.

According to Wind Information (ID: TradeWind01), as of June 27, a total of 24 companies are expected to IPO on the Hong Kong stock market in 2024. Among them, only Jingwei Tian Di (2477.HK), Hongji Group (2535.HK), and EDA Group Holdings (2505.HK) had first-day gains exceeding LAOPU GOLD.

LAOPU GOLD's journey to the capital market has been quite tortuous.

As early as June 2020, it applied to the China Securities Regulatory Commission for listing on the Shenzhen main board under the sponsorship of Huatai Securities, but was rejected during the review in August 2021.

In February 2022, LAOPU GOLD hired CICC as the sponsor and submitted a listing application to the Shenzhen main board again in June 2023.

However, it was hastily withdrawn a month later. Thus, LAOPU GOLD's two A-share IPO attempts both failed, and the Hong Kong stock market became the new destination for listing.

Judging from the significant first-day increase in its Hong Kong listing, after the tightening of A-share IPOs, companies planning to IPO have turned to the Hong Kong stock market as an alternative.

In this Hong Kong IPO, LAOPU GOLD issued a total of 19.4513 million shares at an issue price of HKD 40.5 per share, raising a total of HKD 788 million. After deducting issuance expenses, the net proceeds raised were approximately HKD 713 million LAOPU GOLD has three cornerstone investors, namely Tencent, Southern Fund, and Yuanfeng Fund. Among them, Tencent subscribed $35 million through Tencent Huang River, Southern Fund subscribed $10.5 million, and Yuanfeng Fund subscribed $10.5 million through CPE FUND, totaling $56 million.

As one of the Pre-IPO investors, the founding partner of Black Ant Capital, He Yu, may provide some clues for the capital's optimism about LAOPU GOLD.

He Yu believes that, first, compared to other gold brands, LAOPU GOLD has a higher gross profit margin, and some new product series are developing towards the profit range of luxury goods. Second, the capital return on investment of LAOPU GOLD's gold is much higher than the industry average, with both high-end and large-scale attributes.

LAOPU GOLD is positioned as a high-end gold jewelry brand, commonly found in high-end department stores.

According to Frost & Sullivan data, in 2023, among all gold jewelry brands in China, LAOPU GOLD ranked first in single-store revenue.

In 2023, LAOPU GOLD achieved revenue of 3.18 billion yuan through 30 self-operated stores, a significant year-on-year increase of 145.75%, with an average store revenue exceeding 100 million yuan.

In comparison, Dream Gold Garden, also listed in Hong Kong Stock Exchange alongside LAOPU GOLD, only generated approximately 7 million yuan in revenue per store.

However, the continuous rise in gold prices this year has suppressed the consumption of gold jewelry.

The 2024 fiscal year performance report released by industry leader Chow Tai Fook (1929.HK) (for the 12 months ending March 31, 2024) showed a 13.3% year-on-year decline in revenue from its higher-end jewelry and inlaid jewelry.

Chow Tai Fook attributed the soft consumption of jewelry and inlaid jewelry to challenges in the external macroeconomic environment.

However, luxury jewelry brands have always had a certain "counter-cyclical" ability.

The 2024 fiscal year financial report of the Swiss Richemont Group shows that the jewelry department, composed of brands such as Cartier and Van Cleef & Arpels, still achieved a 6% increase in sales, reaching 14.242 billion euros. Richemont Group stated that it will shift its focus to a strategy centered on retail channels and jewelry business.

In the current challenging environment for the sales of gold jewelry, it may be time to test the quality of LAOPU GOLD's luxury brand