来源 | 伯虎财经（bohuFN）
Author | Spirit
On April 3, Mengjinyuan submitted a prospectus to the Hong Kong Stock Exchange, which is not the first time that Mengjinyuan has been listed.
As early as September 2020, Mengjinyuan submitted an IPO application to A-shares, but it was rejected by the CSRC in November 2021, and in September 2023, Mengjinyuan submitted an IPO application to the Hong Kong Stock Exchange.
This year, the gold market has been very lively, and the continuous rise in gold prices has brought a prosperous market. The international gold price hit a record high of $2,448.80 per ounce, and the domestic jewelry gold price also rose to around 730 yuan. Many gold brands rushed to this node and flocked to the capital market, including Mengjinyuan, as well as Laopu Gold and Liuliufu.
The market is so lively, the competition is naturally fierce, what kind of confidence does Mengjinyuan take to the table?
01 Growing in the county, rapid development
Unlike the "life experience" of many gold brands, Mengjinyuan is a brand that grew up in the county and continues to take root in the county.
Changle County, Weifang City, Shandong Province, is the hometown of Wang Zhongshan, the founder of Mengjinyuan, which is one of the world's four major sapphire mining areas. In 1994, billions of carats of sapphire deposits were discovered in Changle County. At that time, Wang Zhongshan listened to people and said that he could earn 150 yuan by inlaying a ring in the local area, and a skilled master could earn more than 10,000 yuan a month.
Smelling a business opportunity, Wang Zhongshan started as an apprentice and began to get into the sapphire setting business. Later, with the opening of the domestic gold market, Wang Zhongshan turned around and began to process and wholesale gold jewelry.
According to the prospectus, Mengjinyuan was established in 2000 and is an original brand manufacturer of gold jewelry, mainly high-purity gold jewelry, and also engaged in diamonds, gems and jade inlays, K gold, platinum and other jewelry.
Mengjinyuan, which was born in the county seat, has continued to take root in the county since then, and as mentioned in the prospectus, Mengjinyuan has a solid market position in China's third-tier cities and below.
According to Frost & Sullivan, as of December 31, 2022, Mengjinyuan ranked fifth among Chinese gold jewelry brands with a market share of 3.8% in terms of gold jewelry revenue, and ranked third among Chinese gold jewelry brands in terms of gold jewelry revenue (excluding gold bars) in third-tier cities and below.
As of December 31, 2023, Mengjinyuan has established a comprehensive franchise network, covering 2,817 franchise stores operated by 1,687 franchisees, seven self-operated service centers and 17 provincial agents.
According to the prospectus, about ninety percent of Mengjinyuan's revenue comes from the franchise network of provincial agents and franchisees, while the income of franchisees in third-tier cities and below accounts for 41%, 0.6% in first-tier cities, and 19.2% in second-tier cities.
The gold business in the county is indeed very imaginative. In the social discourse system in recent years, the county seat, the noblewoman, and the gold are almost an excellent combination.
When it comes to the county seat and gold, people often mention it like this: "Big gold stores fight fiercely in small county towns", "small streets in the county town are crowded with gold shops", "China's richest business, capture the county pedestrian street", "...... staring at the county lady" and so on.
The county's love for gold and consumption power are also reflected in the real data. According to business consulting firm Frost & Sullivan, from 2017 to 2022, the compound growth rate of the gold jewelry market in third- and fourth-tier cities and below was 11%, much higher than the 6.7% in first-tier cities.
Another specific data is that Mengjinyuan's operating income has grown rapidly. In 2020, the company's operating income was 10.842 billion yuan, and from 2021 to 2023, the operating income was 16.878 billion yuan, 15.733 billion yuan, and 20.216 billion yuan respectively, with a year-on-year change of 55.67%, -6.78%, and 28.50%. The operating income in 2023 is nearly twice that of 2020.
It is worth noting that despite the considerable growth rate of revenue, the profitability of Mengjinyuan has become a "slot".
02 Sell gold, but don't make money
"Selling gold, but not making money" has become a major label of Dream Gold Park.
According to the prospectus, from 2021 to 2023, its gross profit will be about 536 million yuan, 759 million yuan and 1.078 billion yuan respectively, with gross profit margins of 3.2%, 4.8% and 5.3% respectively, and net profit of 220 million yuan, 180 million yuan and 230 million yuan respectively in the same period, with net profit margins of 1.3%, 1.1% and 1.2%.
The gross profit margin of Mengjinyuan is significantly lower than the industry average. In the first half of 2023, the gross profit margin of Laopu Gold will be 41.7%, the gross profit margin of Chow Tai Fook in fiscal 2023 will be about 22.36%, and the gross profit margin of brands such as Chow Tai Sang will also be around 10%.
In the prospectus, Mengjinyuan explained that in 2021, the overall price of gold showed a downward trend, resulting in Mengjinyuan purchasing gold at a relatively high price level and charging customers a gold price lower than the purchase cost. The time lag between purchasing and selling transactions, combined with the decline in the gold price during the year, led to a decline in gross profit.
In addition to the impact of changes in the price of gold, there are more important reasons for the low gross profit of Mengjinyuan.
The product structure of the gold store largely determines its profitability. In general, brands sell not only gold, but also jewelry, watches, etc. Because by purely selling gold, all you earn is the retail price difference and processing fees. According to the estimation of Guosen Securities, the overall terminal gross profit margin of gold products priced by grams is about 10%, and all the money earned is hard money.
In order to increase profitability, it is necessary to increase the number of products such as silver, platinum, gold and jade. According to the Mengjinyuan prospectus, from 2021 to 2023, the gross profit of gold jewelry and other gold products will be 2.2%, 3.9% and 4.6% respectively, while the gross profit of K gold jewelry, diamond-encrusted jewelry and other products will be 23.7%, 28.1% and 27.5% respectively.
The problem is that almost all of Mengjinyuan's revenue comes from gold jewelry and other gold products, accounting for 97.5%, 97.7%, and 98.4% of its revenue from 2021 to 2023, which is not only high, but also increasing year by year. Conversely, earnings from karat gold jewelry, diamond-encrusted jewelry and other products have hovered around 1% for three years. It shows that Mengjinyuan's product structure is single and highly dependent on the gold business, which is not conducive to the improvement of gross profit.
In addition, it has also been pointed out that compared with well-known gold jewellery brands such as Lao Fengxiang and Chow Tai Fook, the brand awareness of Mengjinyuan is relatively inferior. Therefore, Mengjinyuan needs to attract consumers through price advantages to a certain extent.
With the county as the main camp, it is determined that the crowd and market are more cost-effective. This may also be a major reason for the relatively low gross profit of Mengjinyuan.
Factors such as the low gross profit margin and the relatively large proportion of the old material business are also considered to be important reasons for the previous listing of Mengjinyuan. Whether we can overcome the relevant impact and get the desired results in the IPO has also become a major focus of attention from the outside world.
03 Competition in the gold market
The county market is the "fragrant bait" of the gold brand, and it has become an incremental excavation place. But at the same time, it also means more and more fierce competition.
Mengjinyuan, which took root in the sinking market early, already has a certain first-mover advantage. But the problem is that the latecomers are not "vegetarians" either.
In 2018, Chow Tai Fook proposed the "New Town Plan" to increase the number of counties and towns. According to the financial report, compared with FY2019, the proportion of retail outlets in Chow Tai Fook's third-tier and below cities in FY2023 increased from 37.5% to 45.9%.
Zhou Dasheng is also a fierce player in the county market. As of June 2023, nearly 70% of Chow Tai Sang's 4,735 stores are in third- and fourth-tier cities and below.
In addition, more and more brands are looking at the gold business in the county and accelerating the influx.
At the same time as the "noble lady" in the county is emerging, Mengjinyuan is also facing more strong competition.
When the golden track is in its prime, it is worth looking forward to whether the future Dream Jinyuan will further consolidate its position in the industry through this listing, or whether it will be up and down in a series of shortcomings.
Resources:
1. New consumption of 100 million euros: Shandong drivers counterattacked and became gold tycoons, with an annual income of 20 billion
2. NetEase Digital Reading: China's richest business, capturing the county pedestrian street
3. Financial industry: Mengjinyuan's revenue exceeded 20 billion yuan and moved to Hong Kong stocks, and the low gross profit margin was only 5.33%.
4. Mengjinyuan prospectus
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