Citibank: Old Shop Gold (06181) increased discounts, putting pressure on gross margin to a target price of HK$507 and a “buy” rating

The Zhitong Finance App learned that Citi released a research report saying that the old store Gold (06181) increased shopping mall promotional discounts in the third quarter of this year, which will help drive a quarterly increase in sales, but gross margin will also decline quarterly; the bank now has a target price of HK$507 and a “buy” rating. The bank assessed that revenue for the third quarter would need to increase by 18% to RMB 3.9 billion on a quarterly basis to maintain the same level of net profit as the second quarter.

The report mentioned that during the third season shopping mall promotion, Old Shop Gold offered a 15% to 20% price discount, up from the previous 10%. Since older products account for the majority of sales, the bank expects to offer an additional 9% discount in the third quarter. Assuming no change in sales costs, gross margin is expected to drop from 47% in the second quarter to 41.8% in the third quarter.

The bank estimates that if the company's third-quarter revenue increases by 18% quarterly to RMB 3.9 billion, net profit will remain flat at RMB 667 million on a quarterly basis, with a net profit margin of 17.1%. Considering seasonal factors, revenue for the fourth quarter is expected to increase 50% quarterly, between 4.5 billion yuan and 6.3 billion yuan, net profit between 818 million yuan and 1.27 billion yuan, and a net profit margin of 18.2% to 20.1%.

Summarizing the second half of the year, the revenue of old stores is expected to be between 7.5 billion yuan and 10.5 billion yuan, a year-on-year decrease of 15% to 39%, net profit of 1.26 billion to 2.01 billion yuan, and a net profit margin of 16.8% to 19.2%.