Cathay Pacific Haitong: Gold prices rebounded, recommended targets related to the gold and jewelry sector

The Zhitong Finance App learned that Cathay Pacific Haitong released a research report saying that gold prices are rebounding, recommending gold jewelry brands that are expected to benefit from the sales side and profit flexibility side. US non-agricultural data fell short of expectations, and expectations of the Federal Reserve's interest rate hike weakened. London gold has now risen sharply since August 5. Currently, it has broken through 4,300 US dollars/ounce, a new high since June 18, and continues to fluctuate in the range of 4,000 to 4,200 US dollars/ounce from the end of June to the beginning of August. According to the bank, the previous suppression of the jewellery sector's stock prices was mainly due to concerns about continued sales, gross profit margin, and subsequent growth against the backdrop of a higher base in the second half of the year due to weakening gold prices since 2026Q2. The current rebound in gold prices is expected to drive continued growth under a high base in the second half of the year. Leading companies will increase their share with excellent product strength and drive the release of operating leverage. Currently, it is expected that both valuation and performance will recover.

The bank believes that the main beneficiaries of this round of gold price rebound in the gold and jewellery sector can be cut from both sales volume and profit flexibility. 1) In terms of volume, judging from historical performance, the relationship between the price of gold and the growth rate of the industry is phased and positively driven in the medium to long term. Since 2024, the short-term sharp rise in gold prices has been negatively correlated with demand for jewelry and positively correlated with demand for investment; the continuous rise in medium- to long-term gold prices has been positively driven by demand for jewelry and investment. The growth rate of the industry from 2001 to 2012 fluctuated in the same direction as the price of gold. After 2013, the correlation weakened due to factors such as falling wedding demand, and price increases since 2023 have been the main contribution to the growth of the industry.

In terms of jewelry, one-price gold products benefit from its relatively stable pricing system, and sales are favorable when gold prices rise in the short term. Therefore, the volume level of this round of gold price rebound is mainly beneficial to companies with one-price products as the core/focus on single-price gold products, and companies that mainly sell gold bars.

2) At the level of profit elasticity, the operating model determines the elastic difference between gold prices and corporate gross margin. Companies that have a direct management model, slow inventory turnover, a high proportion of gold per gram, and use the first-in, first-out method to account for inventory are more flexible in increasing gross margin when gold prices rise.

Risk warning: Gold prices fluctuate drastically, drastic changes in the stock market, housing market, etc. crowd out gold consumer demand, poor franchisee management, and increased homogenized competition in the industry.