A seven-year-old Chinese handcrafted gold jewelry brand which chalked up glittering half-year profits is looking to list in Hong Kong as it muscles its way into the high-end heritage gold jewelry market.
It's the second time that Laopu Gold, which uses ancient Chinese gold craftsmanship techniques, is looking to go public.
An earlier attempt to list Shenzhen in 2020 proved unsuccessful, with the jeweler facing questions from China's security regulator over its extremely high gross profit margin and dependence on major suppliers - and these risks remain.
Established in 2016, Laopu Gold says it is a pioneer in heritage gold jewelry - which are themed on dragons, phoenixes and other traditional Chinese symbols - and the first to introduce traditional heat-treated enamelling techniques for pure gold jewelry in China.
It also uses other old Chinese techniques such as filigree inlays and gold and silver inlays.
The jeweler has 29 stores in high-end shopping destinations in Beijing and Hangzhou including the SKP-S and MIXC malls in addition to online channels in Tmall, JD.Com (9618) and WeChat.
Laopu Gold opened a store in Harbour City in Tsim Sha Tsui back in 2018 but closed it when the Covid pandemic struck. Now, it has returned to the city and leased a store at the Silvercord complex in Tsim Sha Tsui which was previously occupied by Burberry for a monthly rent of HK$1.5 million.
Laopu Gold was 10th best jewelry brand preferred by wealthy people and among the only two Chinese brands on the list together with Chow Tai Fook Jewellery (1929), according to the Hurun Research Institute.
And its interim results have dazzled in 2023 with revenue and net profit surpassing 2022's full-year figures at 1.4 billion yuan (HK$1.51 billion) and 196.8 million yuan respectively.
Its gross profit margin stood firm above 40 percent, though sliding to 41.7 percent from 43.1 percent in 2020.
However, this figure is far higher than industry leaders like CTF, whose gross profit margin ranged from 23.4 to 29.6 percent in 2020-2022.
The China Securities Regulatory Commission had questioned Laopu Gold's significantly higher gross profit margin in 2020, but Laopu says its margins are higher as it is able to charge higher prices for its jewelry because of the exquisite craftsmanship.
The CSRC had also questioned Laopu Gold over overlapping customers and suppliers as well as alleged tunneling - the transfer of assets and profits out of firms for the benefit of their controlling shareholders - in reference to Golden Treasury which is separate from Laopu Gold but shares the same owner.
Laopu Gold says customer-supplier overlapping was a one-off occurrence due to the pandemic, and has since ended.
Laopu Gold remains heavily reliant on major suppliers with the top five supplying 96 percent of total materials. The largest supplier accounted for 80.2 percent for the first six months.
Its heavy inventories are another concern. Inventories reached 964.5 million yuan as of June, accounting for 76 percent of total current assets but Laopu Gold says the stock aims to meet anticipated sales.
While Laopu Gold warns of the risk of inventory impairment should gold prices slump, the inventories might further rise as its business expands.
The net proceeds of the initial public offering will be used to open 35 new stores in the mainland and about 12 outlets in overseas markets including Hong Kong, Macau and Southeast Asia.
Though China's gold jewelry sales are expected to reach 546.5 billion yuan in 2027 from 409.8 billion yuan in 2022, Laopu Gold took only a market share of 0.3 percent last year.
Even in the heritage gold jewelry market, Laopu Gold occupied only 1.3 percent in terms of revenue last year, and needs to compete with the industry giants such as CTF and Chow Sang Sang (0116).
China Securities (International) is the sole sponsor of the IPO.
