After the market closed yesterday, Lao Pu announced its second rights issue of the year. Coupled with the recent decline in gold prices, this has triggered a continuous pullback in Lao Pu's stock price. So, how should we view this rights issue by Lao Pu? Dolphin Research will briefly discuss:

First, compared to the first rights issue in May, although the total fundraising amount is similar (around HKD 2.7 billion), this time Dolphin Research estimates that the discount rate is only 4.5%, and the placement size accounts for 2.6% of the expanded total share capital (the discount rate in May was 8%, accounting for 3.2% of the total share capital). Therefore, in terms of the dilution ratio to the stock price, it is obviously more friendly to investors. As for the use of the proceeds, unlike the 80% of funds in May that were used for store expansion, location optimization, and personnel expansion, this time 70% of the funds will be used to purchase inventory (gold) (only 10% for store expansion), making the use of funds more focused. The question is, why is Lao Pu raising funds to buy inventory at this time?

In fact, the reason is quite straightforward—both inventory and cash are insufficient! We can do a simple calculation: Lao Pu's revenue in the second half of 2024 was RMB 5.3 billion, corresponding to year-end inventory of RMB 4 billion, while Lao Pu's revenue in the first half of 2025 was RMB 12.3 billion, corresponding to inventory of RMB 8.5 billion. This means that during the high growth phase of Lao Pu's revenue, the ratio of inventory to revenue must remain basically consistent to ensure no supply issues (inventory/revenue at around 70%-75%). According to last year's operating pace, if revenue in the second half of the year reaches RMB 18 billion, it means that inventory must be at least RMB 13.5 billion to match. As of the first half of 2025, Lao Pu's inventory was only RMB 8.7 billion, and an additional RMB 5 billion in inventory is needed in the second half of the year. However, Lao Pu's current cash on hand is only RMB 2.5 billion, meaning the remaining RMB 2.5 billion gap can only be filled through external financing, which aligns with the proportion of this rights issue.

Additionally, from the profit side, due to the recent surge in gold prices, Lao Pu announced on October 17th that it would implement its third price increase of the year starting from the 26th, with an expected increase of about 15%. Combined with the previous two increases (10% in February, 12% in August), the overall price increase for the year is close to 40%. At this rate, the gross profit margin in the second half of the year should remain stable.

Therefore, based on the above analysis, as long as Lao Pu can use this rights issue to stockpile inventory and continue to achieve high turnover from inventory to sales, while gradually strengthening its brand power, it is a positive move from an operational perspective. Finally, from a valuation perspective, after the previous decline, the current performance of Lao Pu corresponding to 2026 is only about 17x. According to Dolphin Research's revised model based on the interim report, the DCF valuation exceeds HKD 170 billion, with an upside potential of over 40%. Whether to invest ultimately depends on whether Lao Pu can attract more consumers to focus on its logo rather than its design and the underlying gold price during this main upward wave of gold prices.