CITIC Securities: LAOPU GOLD's profit warning meets expectations, maintains "Reduce" rating

CITIC Securities International published a report indicating that LAOPU GOLD (06181.HK) has a positive earnings forecast for the fiscal year 2025 that meets expectations. LAOPU GOLD guides for fiscal year 2025 revenue between RMB 27 billion and 28 billion, representing a year-on-year growth of 217% to 229%, with net profit expected to be between RMB 4.8 billion and 4.9 billion, a year-on-year increase of 226% to 233%. The adjusted net profit under non-International Financial Reporting Standards is expected to be between RMB 5 billion and 5.1 billion. The bank attributes this rapid growth to brand expansion, sustained channel growth momentum, and the opening of 10 new stores, all of which have been fully communicated to the market since the release of the fiscal year 2025 first-half performance.

The report states that the company's sales momentum in the first two months of fiscal year 2026 is strong, but caution is still needed. The bank's channel research shows that driven by strong online and offline growth, GMV in the first two months of fiscal year 2026 surged over 70% year-on-year. Although this exceeds the bank's and market's expectations of about 50% to 60%, the bank remains vigilant about growth momentum in March, as price adjustments in February may disrupt FOMO (fear of missing out) buying behavior. Additionally, considering the exceptionally high base in 2025, relying solely on low double-digit profit exceeding expectations may not be sufficient to trigger a valuation reassessment, bringing it back to a price-to-earnings ratio of over 18 times during the "golden era" upcycle.

Since initiating coverage in January, the bank has maintained a "reduce" rating on LAOPU GOLD. The bank believes that the marginal returns from stimulating demand through the lagging effect of gold prices are diminishing. Furthermore, the strategic implicit upper limit of approximately 40% gross margin sets a very high threshold for balancing sales growth and profitability. The target price is currently under review before the full performance report is released