Yangtze River Business Daily News ● Yangtze River Business Daily reporter Huang Cong
Mengjinyuan, China's fifth-largest gold jewellery brand, plans to list on the Hong Kong stock market for the third time, but its profitability is far from that of its peers.
On October 14, Mengjinyuan submitted a prospectus to the Hong Kong Stock Exchange for the third time, planning to be listed on the main board of the Hong Kong Stock Exchange.
According to the prospectus, in the first half of 2024, Mengjinyuan's revenue will be 9.98 billion yuan, a year-on-year increase of 7.1%; The net profit was 47.433 million yuan, down 54.5% year-on-year.
In the first half of 2024, Mengjinyuan's gross profit margin will only be 6.2%. In comparison, Chow Tai Fook's gross profit margin in fiscal year 2024 is 20.50%, and Chow Sang Sang's gross profit margin in the first half of 2024 is 28.3%, which is significantly lower than that of its peers.
As of the end of the first half of the year, the company had 2,850 franchised stores in multiple provinces and more than 250 prefecture-level cities.
It is worth mentioning that in March 2024, it was reported that a number of franchise stores of "China Gold" and "Shandong Gold" in Beijing ran away, and the news that "hundreds of millions of gold worth of customer custody cannot be withdrawn" has attracted widespread attention.
Mengjinyuan said that the company has limited control over the operations of its franchisees, and that "if we are unable to maintain or further develop our cooperation with franchisees, or if there is any illegal conduct, misconduct or failure of franchisees to provide satisfactory services, our business, financial condition and results of operations may be adversely affected."
Wang Zhongshan's family holds 89.39% of the shares
Mengjinyuan is an original brand manufacturer of gold jewelry, mainly high-purity gold jewelry, and also engaged in diamonds, gems, jade inlays, K gold, platinum and other jewelry.
According to the Frost & Sullivan report, Mengjinyuan is the fifth largest gold jewelry brand in China in terms of gold jewelry revenue in 2023, with a market share of 3.8%. The top four in the industry are Chow Tai Fook, Lao Fengxiang, China Gold and Yuyuan Shares.
On October 14, Mengjinyuan submitted a prospectus to the Hong Kong Stock Exchange for the third time, planning to be listed on the main board of the Hong Kong Stock Exchange.
Previously, Mengjinyuan had applied to the China Securities Regulatory Commission for listing on the Shenzhen Stock Exchange in September 2020, but its A-share listing application was not approved in November 2021. In September 2023 and April 2024, Mengjinyuan submitted two more forms to the Hong Kong Stock Exchange.
The founders of Mengjinyuan are Wang Zhongshan and Zhang Xiuqin, and since its establishment in 2000, the company has carried out multiple rounds of financing.
According to the prospectus, the total financing of Mengjinyuan reached 285 million yuan, and the investor lineup included Tianjin Haikai Xinchuang, CITIC Securities Investment and a series of investors.
According to the prospectus, Wang Zhongshan, Zhang Xiuqin, the founders of Mengjinyuan, as well as their son Wang Guoxin and daughter Wang Na, hold a total of about 89.39% of the shares through direct or indirect means, and a family of four is the actual controller of the company.
It is worth noting that among the shareholders of Mengjinyuan is an investor named Huang Yi, that is, the famous actor Haiqing.
From 2013 to 2020, Haiqing has been the corporate image spokesperson of Mengjinyuan.
In 2018, Haiqing invested 5 million yuan in Mengjinyuan, with a shareholding ratio of 2.22% at that time. In March 2022, Haiqing transferred its 0.67% stake due to personal financial problems, and its shareholding ratio was reduced to 1.56%.
Up to now, Haiqing still holds 3.5 million shares of Mengjinyuan, accounting for about 1.53% of the total share capital.
In addition, Tianjin state-owned Tianjin Haikai Xinchuang Industry Development Co., Ltd. holds 4.37% of the shares; Tianjin Haitai Group holds 4.37%; CITIC Securities holds 1.82% of the shares.
It should be noted that CITIC Securities holds 1.82% of Mengjinyuan's shares, which was obtained by way of capital increase in August 2022. At present, CITIC Securities (Hong Kong) Co., Ltd. is the sole sponsor of Mengjinyuan.
Unstable performance, net profit margin 0.5%
In recent years, Mengjinyuan's performance has not been stable.
From 2021 to 2023, Mengjinyuan's revenue will be 16.871 billion yuan, 15.724 billion yuan and 20.209 billion yuan respectively, and its net profit will be 224 million yuan, 181 million yuan and 233 million yuan respectively.
Among them, for the decline in performance in 2022, Mengjinyuan said that it was mainly affected by the setback of consumer confidence caused by the outbreak of the epidemic.
In the first half of 2024, Mengjinyuan's revenue will be 9.98 billion yuan, a year-on-year increase of 7.1%; The net profit was 47.433 million yuan, down 54.5% year-on-year.
In this regard, Mengjinyuan said that it was mainly due to the sharp rise in gold prices in the first half of 2024, which led to a net realisation loss on Au (T+D) contracts during the relevant period.
From 2021 to 2023 and in the first half of 2024, Mengjinyuan's gold procurement accounted for 99.0%, 99.2%, 99.5% and 99.6% of the company's total raw material procurement, respectively.
According to the prospectus, Mengjinyuan's gross profit margin is lower than that of its peers.
From 2021 to 2023 and the first half of 2024, the gross profit of Mengjinyuan was 536 million yuan, 759 million yuan, 1.077 billion yuan and 618 million yuan, respectively, and the gross profit margin was 3.2%, 4.8%, 5.3% and 6.2%, respectively.
In comparison, in FY2024, Chow Tai Fook's consolidated gross profit margin will be 20.50%, down 1.86 percentage points from 22.36% in the previous year.
In the first half of 2024, Chow Sang Sang's gross profit margin edged up to 28.3% from 28.0% in the same period last year.
Mengjinyuan said the company's gross profit is made up of labor costs and the difference between the original cost of gold on the date of purchase and the prevailing market price of gold on the date of sale. Since labor costs are usually fixed, the company's gross profit and gross margin are significantly affected by fluctuations in the gold price.
From 2021 to 2023 and the first half of 2024, Mengjinyuan achieved net profit margins of 1.3%, 1.1%, 1.2% and 0.5%, respectively.
Mengjinyuan said that the company's lower net profit margin is mainly due to the company's adoption of a franchise distribution model, and the company's fixed labor fees are kept low when selling products to provincial agents and franchisees; Correspondingly, this pricing model benefits its franchisees, who can then sell to consumers at a higher margin.
The average revenue of franchise stores decreased by 9.4%
Mengjinyuan focuses on the sinking market, and the company ranks third among Chinese gold jewelry brands in terms of gold jewelry revenue (excluding gold bars) in third-tier cities and below.
According to the prospectus, from 2021 to 2023 and the first half of 2024, the third-tier, fourth-tier and below cities accounted for 37.0%, 41.3%, 41.0% and 37.2% of the revenue from sales to franchisees, respectively.
According to Mengjinyuan, the company has been able to expand rapidly in third-tier cities and below thanks to its business model of setting up franchise stores across China. Local franchisees understand the preferences of local consumers, so they are able to adjust their product mix and develop flexible marketing strategies to enhance the consumer shopping experience.
At the same time, Mengjinyuan believes that the company's franchise network can help grasp the growth potential of the target market and deepen market penetration, which is crucial for long-term growth.
From 2021 to 2023 and by the end of the first half of 2024, Mengjinyuan has 2,680, 2,743, 2,817 and 2,850 franchise stores respectively, covering multiple provinces and more than 250 prefecture-level cities.
However, the rise in the price of gold has also affected consumer demand. According to the prospectus, as of the first half of 2024, the average revenue of Mengjinyuan franchise stores decreased by 9.4% compared with the same period in 2023. The company said this was mainly due to the weakening of consumer confidence due to the rise in gold prices in the first half of the year, and the general decline in sales volumes.
In fact, Mengjinyuan's franchise store has hidden risks.
In March 2024, it was reported that a number of franchise stores of "China Gold" and "Shandong Gold" in Beijing ran away, and the news that "hundreds of millions of gold worth of customer custody cannot be withdrawn" attracted widespread attention.
Mengjinyuan said that the company has limited control over the operations of its franchisees, and that "if we are unable to maintain or further develop our cooperation with franchisees, or if there is any illegal conduct, misconduct or failure of franchisees to provide satisfactory services, our business, financial condition and results of operations may be adversely affected."
In terms of the next channel expansion, the prospectus shows that Mengjinyuan plans to establish 33 new self-operated stores by December 2027 by establishing self-operated stores and increasing the scale and operation of its 7 self-operated and directly operated service centers, of which 20 are located in Shandong, 5 are located in Henan, and 4 are in Beijing and Tianjin.
At the same time, in the future plan, Mengjinyuan also said that it will mainly focus on the expansion work in the domestic third-tier cities and below.