Citigroup has reaffirmed LAOPU GOLD (06181) as its top pick in the China jewelry sector. Based on higher gross margin forecasts, the bank raised its net profit estimates for 2025 to 2027 by 2% to 3%. The target price was lifted from HK$1,119 to HK$1,162, implying a projected price-to-earnings ratio of 24 times for this year. The "Buy" rating was reiterated.
LAOPU GOLD issued a positive profit alert, forecasting a net profit increase of 226% to 233% year-on-year for 2025, reaching between RMB 4.8 billion and RMB 4.9 billion. This exceeded the bank's estimate of RMB 4.7 billion and market expectations of RMB 4.5 billion to RMB 4.8 billion. Adjusted net profit, excluding the impact of share-based payments, rose 233% to 240% year-on-year to between RMB 5.0 billion and RMB 5.1 billion.
Revenue grew 217% to 229% year-on-year, amounting to RMB 27 billion to RMB 28 billion, aligning with the bank's projections and surpassing market expectations of RMB 26 billion to RMB 27 billion. The bank noted that the contraction in gross margin was less severe than initially feared. It is estimated that the core net profit margin for 2025 expanded to between 17.9% and 18.9%, up from 17.7% in 2024, reflecting strong operating leverage that more than offset potential gross margin pressure.
Based on a projected 2026 price-to-earnings ratio of 13 times, the stock's valuation remains attractive.
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