A couple opened 2,800 gold shops and is planning an IPO

The price of gold skyrocketed.

Author I Chen Xiao

Report I Investment Community-Tiantian IPO

Another gold shop IPO appears.

Investment Circle-Tiantian IPO learned that Mengjinyuan Gold Jewelry Group Co., Ltd. (referred to as "Mengjinyuan") submitted an application for listing to the Hong Kong Stock Exchange, and CITIC Securities is its exclusive sponsor.

Who is Mengjinyuan? Founded 20 years ago, the story of Mengjinyuan began with Shandong couple Wang Zhongshan and Zhang Xiuqin. Although not as well-known as the several "Zhou families", Mengjinyuan has been deeply involved in China's sinking market. So far, it has opened more than 2,800 gold stores by itself or through franchise, with an annual revenue of more than 20 billion, becoming one of the top ten companies in China in terms of gold and jewelry sales revenue.

The skyrocketing gold prices this year also sounded the rally call for gold shop IPOs - Mengjinyuan, Laopu Gold and Chow Tai Fook are all lining up to grab IPO tickets.

2,800 gold shops opened

Shandong couple is about to ring the bell for IPO

The story of Mengjin Garden begins with a man from Shandong.

Wang Zhongshan was born in Changle County, Weifang City, Shandong Province in 1964. In his early years, he worked as a farmer, driver, and transporter, and worked everywhere to make a living. Later, his hometown, Changle County, discovered a sapphire mine with billions of carats, and became the "Sapphire Capital of China".

The unique gem resources brought unprecedented business opportunities to the local area. Wang Zhongshan, who was in his early 30s at the time, decided to devote himself to the jewelry business and learned jewelry making techniques from the master of arts and crafts Nan Zhigang. After completing his studies, he started out by doing OEM jewelry business.

Most OEM factories have the dream of establishing their own brands, and Wang Zhongshan is no exception. In 2004, Shandong Mengjinyuan Jewelry Co., Ltd. was established, and the "Mengjinyuan" brand was born, focusing on ancient gold jewelry.

Soon, the company was on the right track. In 2006, Mengjinyuan established the Jinan Operation Center and began to expand across the country. In 2010, Mengjinyuan established the Beijing Operation Center and then established its headquarters in Tianjin, radiating the national market.

At the same time, Mengjinyuan fully opened up franchising and expanded stores in third- and fourth-tier cities. The prospectus shows that as of December 31, 2023, Mengjinyuan has opened 2,817 franchise stores, seven self-operated and direct-operated service centers, and 17 provincial agencies, with footprints all over the country.

Although it is not as well-known as several "Zhou's" gold shops and is not concentrated in first-tier cities, Mengjinyuan still occupies a place in the industry. The prospectus cited Frost & Sullivan data, from 2018 to 2022, Mengjinyuan is the only gold jewelry brand that has been ranked among the "Top Ten Chinese Gold Jewelry Processing Enterprises" and "Top Ten Chinese Gold Jewelry Sales Revenue Enterprises" by the China Gold Association.

But the listing experience was quite bumpy. As early as 2020, Mengjinyuan began to impact the A-share market, but failed twice in succession. In 2023, Wang Zhongshan set his sights on the Hong Kong Stock Exchange and submitted a listing application to the Hong Kong Stock Exchange for the first time in September. This is the second time he has submitted a prospectus.

The prospectus shows that Wang Zhongshan and Zhang Xiuqin, their son Wang Guoxin and their daughter Wang Na, hold a total of about 89.39% of the shares directly or indirectly, and the four of them are the actual controllers of the company. In addition, Tianjin State-owned Tianjin Haikai Xinchuang Industrial Development Co., Ltd. holds 4.37% of the shares; artist Hai Qing (Huang Yi), who once served as the spokesperson for Mengjinyuan, holds 1.53% of the shares.

Before Mengjinyuan's IPO, some investment institutions had already exited - Shenzhen Ping An Tianyu Equity Investment Fund Partnership (Limited Partnership) and Jiaxing Yuguang Investment Management Partnership (Limited Partnership) subscribed for 3.46% and 0.4% of Mengjinyuan's shares at a cost of 1 yuan per share in 2018, and then transferred them at a price of 12.88 yuan per share at the end of 2021, making a profit.

After many twists and turns, Mengjinyuan stood in front of the IPO gate for the fourth time, waiting for the moment when the bell rang.

Annual revenue of 20 billion yuan

Capturing the middle class in county towns

How can a gold shop support an IPO?

The prospectus shows that from 2021 to 2023, Mengjinyuan's revenue was 16.871 billion yuan, 15.724 billion yuan, and 20.209 billion yuan, respectively, and its net profit was 220 million yuan, 180 million yuan, and 230 million yuan, respectively. Since 2023, the gold fever brought about by the record high gold prices has reversed the downward trend of Mengjinyuan's revenue in 2022, with a year-on-year increase of 28.5%.

Although the annual revenue exceeds 20 billion, not much actually goes into Mengjinyuan's pocket. In the past three years, Mengjinyuan's gross profit margins were 3.1%, 4.8%, and 5.3% respectively. Compared with its peers, Laopu Gold, which also submitted its listing to the Hong Kong Stock Exchange, had a gross profit margin of 41.7% in the first half of 2023, Chow Tai Fook's gross profit margin in fiscal year 2023 was 22.36%, and the gross profit margins of brands such as Chow Tai Seng were also around 10%.

Gold makes money, but selling gold alone does not seem to make money. The prospectus shows that the gross profit margin of Mengjinyuan's gold products is only 4.6%, while the gross profit margin of K-gold jewelry, diamond-studded jewelry and other products is 27.5%. However, more than 90% of Mengjinyuan's revenue comes from gold products.

In this regard, Mengjinyuan mentioned in its prospectus that since most of the cost of gold price increases can be transferred to consumers, even if the monetary value of gold inventory increases, it will not be recorded as net profit on the books. On the contrary, the rise in gold prices will bring more procurement, inventory and cost control pressure to the company.

Regardless of its ability to make money, Mengjinyuan seems to thrive in the lower-tier markets. According to its prospectus, 90% of the company's revenue comes from its franchise network of provincial agents and franchisees, while franchisees in third-tier and lower-tier cities account for 41% of the revenue, first-tier cities for 0.6% and second-tier cities for 19.2%.

In the past, first- and second-tier cities were the main places for gold purchases, and they were also the main battlefields for major gold shops to compete for. However, in recent years, the rise of the "middle class in county towns" has quietly changed the main consumer force. According to Frost & Sullivan data, from 2017 to 2022, the compound annual growth rate of the gold market in third-tier and lower-tier cities was 11.0% and 11.5% respectively, much higher than the 6.7% and 8.3% in first- and second-tier cities.

In order to compete for this piece of cake, major gold shops have started to expand to lower-tier cities. CCTV previously reported that more than a dozen gold shops have opened on the main street of a fourth-tier city. Faced with the attack from both sides, Mengjinyuan stated in its prospectus that it will continue to expand into third-tier and lower-tier cities, and plans to open 33 new self-operated stores by 2026.

At present, the gold price remains high, and the performance of major gold enterprises is rising, which gives gold jewelry enterprises the confidence to continue to impact IPO. Mengjinyuan strikes while the iron is hot and submits the prospectus again. Once successfully listed, it can not only recover a wave of funds, but also make a name for itself when the competition in the sinking market is becoming more and more fierce.

Gold prices soar

Gold shops line up for IPO

Over the past six months, gold prices have skyrocketed.

As of April 9 this year, London gold hit an intraday high of US$2,365.3 per ounce (about RMB 603.2 per gram), and COMEX gold hit an intraday high of US$2,384.5 per ounce (about RMB 608.1 per gram), setting a new historical record.

Back home, gold prices have skyrocketed, and the public's enthusiasm for gold consumption has also been ignited. The price of gold jewelry in some leading gold jewelry brand stores has exceeded 700 yuan per gram. Major gold shops across the country are crowded with bustling crowds.

This trend is also reflected in the secondary market. The A-share Lao Feng Xiang's stock price has risen by nearly 40% this year, China Gold and Chow Tai Seng have both risen by more than 22%, and the Hong Kong stocks Chow Tai Fook and Luk Fook Group's stock prices have also shown a rapid upward trend.

Why is the price of gold rising more and more?

According to the analysis of major global investment banks, global geopolitical risks and unpredictable macroeconomic prospects; central banks of various countries re-using gold as a reserve asset; and the upcoming decline in U.S. Treasury yields; and even the upcoming U.S. presidential election have all been listed as reasons for the rise in gold prices. However, no one has given a conclusive conclusion. The only consensus is that this wave of gold price trends can no longer be explained by the previous pricing model.

It has been said since ancient times that "buy gold in troubled times". As the world enters an era of inflation, and with the prediction that currency is becoming less and less valuable, gold has become a magic weapon to fight inflation. As the simple saying in economics goes, gold and silver are naturally currencies, but currencies are not necessarily gold and silver.

"Buy gold, preserve value!" In the current situation of increasing uncertainty, gold objectively gives everyone a sense of security. But risks are also in front of us - I still remember the "gold tragedy" ten years ago. There was also a wave of gold fever around 2011. At that time, the spot price of London gold exceeded US$1,900 per ounce, and the "Chinese aunties" became famous for their crazy gold purchases. But then the international gold price plummeted, and countless people were trapped.

As the saying goes: "Investment is risky, so be cautious when entering the market."

From historical experience, a wave of gold fever often leads to a wave of IPOs. Just like the gold fever ten years ago, it directly pushed Chao Hongji and Mingpai to list on the A-share market, and Chow Tai Fook was listed on the Hong Kong stock market, which ushered in a wave of gold jewelry IPOs.

Now history repeats itself, there are already three gold shops queuing in front of the Hong Kong Stock Exchange:

In addition to Mengjinyuan, Laopu Gold disclosed its prospectus in November last year. Last month, the China Securities Regulatory Commission's website released Laopu Gold's overseas issuance and listing registration notice.

There is also Chow Tai Fook. In January this year, there was news that Chow Tai Fook, after its A-share listing failed, also targeted Hong Kong stocks and might raise hundreds of millions of dollars, with a valuation of more than 10 billion yuan.

The other side of the gold rush is that gold shops are supporting IPOs one after another. The gold rush is still going on, but the time window for IPOs is running out.