Table of contents
Overview: Jewelry stock: the most sustainable growth stories in China discretionary consumer? 3
We forecast 15% topline and 23% EPS growth for H-shares stocks in 2013 5
Pricing and volumes bottom; return to normalized growth in 2013 7
Addressing two key concerns in earnings 10
1) Rental cost inflation 10
2) Impact of gifting on watch retailers 11
Why the local jeweler leaders may be the most sustainable discretionary consumption plays in China 11
Valuation: Good risk/reward and limited downside 16
First, exploring downside protection 17
Target price valuations: Director’s Cut 20
Key risks: balance sheet and rebuilding inventory 22
Operating comparison 26
Luk Fook (0590.HK, CL-Buy): Risk/reward looks the best in sector 29
Hengdeli (3389.HK, Buy): Pure play on China's hard luxury market 32
Chow Sang Sang (0116.HK, Neutral): Tight cash caps growth upside 36
Lao Feng Xiang (600612.SS, Buy): Leading local gold-jewelry brand 39
Ming (002574.SZ, Neutral): low profitability, large room to improve 46
Disclosure Appendix 48
Prices in this report are based on the market close of December 4, 2012, unless marked otherwise.
Gao Hua Securities acknowledges the role of Joshua Lu, Vivienne Mao, Lin Tang of Goldman Sachs in the preparation of this
product.