Shares of LAOPU GOLD (HKEX: 06181) have seen a significant pullback from their highs, but UBS believes the market pricing already fully reflects sales pressure, while the potential for gross margin improvement is severely underestimated.
According to the report, UBS's latest research suggests market concerns over competitive threats may be excessive. Channel checks indicate that the combined 2025 sales of three major followers—JEMPER, Linchao, and Borland—amount to only about 4% of LAOPU GOLD's sales for the same period, pointing to an overall benign competitive landscape. Meanwhile, offline foot traffic has improved sequentially, with same-store sales growth (SSSG) turning positive at most locations. The decline at the SKP store was around 20% year-over-year, which was better than market expectations.
Competition Concerns Overstated, Follower Scale Pales in Comparison
Recent market worries about intensifying competition in the heritage gold segment have continued to weigh on LAOPU GOLD's valuation, but UBS's channel research indicates these concerns are significantly overblown.
The report notes that while JEMPER, Linchao, and Borland are currently the more recognized heritage gold brands among consumers, their combined 2025 sales represent just 4% of LAOPU GOLD's sales for that year. UBS believes that against a backdrop of weak gold prices and sales pressure, expansion plans for these follower brands may be further delayed.
From a brand perception standpoint, consumers have gradually begun to associate specific designs with particular brands—for instance, the vajra design is highly linked with LAOPU GOLD, while the pixiu design is more associated with JEMPER.
Although none of these brands hold exclusive rights to cultural derivative designs, the established brand associations make it difficult for new entrants to have a comparable impact.
Gross Margin Expansion Offsets Operating Leverage Pressure
UBS argues that the market is currently overly focused on the risk of declining SSSG, overlooking the earnings support from improving gross margins.
LAOPU GOLD raised product prices by approximately 25% twice, in October 2025 and February 2026. Combined with the retreat in gold prices from highs, UBS calculates that the company's gross margin for the first half of 2026 will expand by 3 to 4 percentage points year-over-year, reaching about 41%, with the second quarter potentially approaching 45%.
In a store-level unit economics model, UBS assumes 75% of rent is variable payment, 80% of labor costs are fixed, and factors in a 50% increase in marketing expenses for VIC service investments. The analysis shows that store-level EBITDA margin could still achieve year-over-year expansion as long as the SSSG decline does not exceed 40%. If the SSSG decline is contained within 10%, store-level EBITDA in absolute terms could also achieve positive growth.
Furthermore, LAOPU GOLD's rental structure continues to optimize—the proportion of variable rent in total rental expenses has increased from 58% in 2023 to 85% in 2025, with only three older Beijing stores maintaining fixed rent contracts, significantly narrowing the risk from operating leverage.
Store Expansion and Overseas Layout Offer Growth Potential
UBS has identified 44 high-end shopping malls in Greater China. Bulgari, Tiffany, Cartier, and Van Cleef & Arpels have a presence in 41 to 43 of these, while LAOPU GOLD currently covers only 23, showing clear under-penetration in Hong Kong, Macau, and mainland China's new first-tier cities, indicating considerable long-term expansion room.
Stores opened by LAOPU GOLD in Shanghai in 2025, such as in IFC, Xintiandi, Plaza 66, and Grand Gateway 66, mostly range from 60 to 100 square meters. UBS channel checks indicate these stores have all signed agreements to relocate or expand by 2026, with expected areas nearly doubling, moving closer to the 200-300 square meter standard typical of hard luxury brands.
Regarding overseas expansion, the mainland's imposition of an additional 7% VAT on gold jewelry in November 2025 further widened the price gap between the mainland and overseas markets.
UBS expects LAOPU GOLD to open 4 to 5 new stores annually from 2026 to 2027 in Hong Kong, Macau, and overseas markets (including Singapore, Malaysia, South Korea, Japan, and Thailand). The net profit margins for Hong Kong and Macau stores are higher than those in the mainland, helping to hedge against demand weakness from price-sensitive consumers in the mainland.
Valuation at Historic Lows, Cash Flow Inflection Point Nears
LAOPU GOLD's share price has fallen 57% from its peak at the end of January 2026, while the gold price declined about 27% over the same period.
UBS believes the share price decline far exceeds the drop in gold prices, meaning sales pressure is fully priced in, but the upside potential from gross margin expansion is not yet fully recognized by the market.
The current share price corresponds to expected price-to-earnings ratios of approximately 7x for 2026 and 6x for 2027, which are at the lowest valuation levels since its listing in June 2024, and short positions are crowded. In comparison, the median for domestic jewelry peers is 10x/9x, and the median for global hard luxury and jewelry peers is 24x/21x. UBS views LAOPU GOLD's valuation as significantly undervalued.
Regarding earnings forecasts, UBS has slightly raised its EPS forecasts for 2026 to 2028 by 0% to 2%, primarily reflecting the offsetting effect of gross margin improvement on revenue pressure and operating deleveraging.
Free cash flow is expected to turn positive starting in 2026, supporting the company in achieving a dividend payout ratio of 70% to 100%. The expected dividend yields for 2026 and 2027 are approximately 11% and 13%, respectively.
UBS forecasts that LAOPU GOLD's revenue and net profit for the first half of 2026 will grow by 93% and 118% year-over-year, respectively. Full-year 2026 net profit is expected to reach RMB 8.261 billion, representing growth of about 70% year-over-year.
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