UBS backs Lao Feng Xiang: Market concerns over competitive threats may be seriously overblown, as followers’ sales are only 4% of theirs.

Laopu Gold’s stock price has sharply retraced from its high, but UBS believes market pricing has fully reflected sales pressure, while the potential for gross margin improvement has been severely underestimated.

According to Chase Trading Desk, UBS’s latest research report points out that the market’s worries about competitive threats may be exaggerated. Channel research shows that JEMPER, Linchao, and Borland—the three major followers—will together account for only 4% of Laopu Gold’s sales in 2025, indicating a generally mild competitive landscape. At the same time, offline foot traffic is improving month-on-month, most stores’ same-store sales growth (SSSG) has turned positive, and the SKP store’s year-on-year decline is about 20%, better than market expectations.

UBS expects Laopu Gold’s revenue and net profit to increase by 93% and 118% year-on-year respectively in the first half of 2026, with full-year net profit expected to reach 8.261 billion RMB, up about 70%. Free cash flow is expected to turn positive starting in 2026, supporting a dividend payout ratio of 70% to 100%, corresponding to a dividend yield of about 11% at the current share price.

Competitive threats overestimated, follower scale is vastly different

Recent worries about intensified competition in the “traditional gold” track have continuously suppressed Laopu Gold’s valuation, but UBS’s channel research indicates this concern is clearly overestimated.

According to UBS’s research, JEMPER, Linchao, and Borland are currently the “traditional gold” brands with higher consumer awareness, but their combined sales in 2025 account for only 4% of Laopu Gold’s sales for the same period. UBS believes that, given weak gold prices and sales pressure, expansion plans of these follower brands may be further delayed.

From the perspective of brand awareness, consumers have begun associating specific designs with particular brands—for example, the Vajra pestle shape has a strong association with Laopu Gold, while the pixiu design is mostly tied to JEMPER.

Although none of these brands have exclusive rights to cultural derivative designs, established brand associations make it difficult for new entrants to create equivalent impact.

Gross margin expansion offsets operating leverage pressure

UBS believes that the market is currently over-focusing on the risk of SSSG decline while ignoring the profit support from gross margin improvement.

Laopu Gold raised product prices twice, about 25% each time, in October 2025 and February 2026. Combined with gold prices falling from highs, UBS estimates the company’s gross margin will expand by 3-4 percentage points year-on-year in the first half of 2026, reaching around 41%, with Q2 expected to approach 45%.

In the unit economics model at the store level, UBS assumes 75% of rent is variable, 80% of labor costs are fixed, and considers a 50% increase in VIC service marketing expenses. Estimation results show that as long as the SSSG decline does not exceed 40%, store-level EBITDA margin can still expand year-on-year; if SSSG decline is controlled within 10%, store-level EBITDA in absolute terms can see positive growth.

Additionally, Laopu Gold’s rent structure continues to optimize—variable rent has risen from 58% of total rent costs in 2023 to 85% in 2025, with only three old Beijing stores maintaining fixed rent contracts, significantly reducing operating leverage risk.

Store expansion and overseas layout provide incremental opportunities

UBS has identified 44 high-end shopping centers in Greater China; among them, Bulgari, Tiffany, Cartier, and Van Cleef & Arpels operate in 41–43 centers, while Laopu Gold currently covers only 23. There is clear under-penetration in Hong Kong, Macau, and mainland new first-tier cities, representing considerable long-term expansion potential.

In 2025, Laopu Gold’s new stores in Shanghai’s IFC, Xintiandi, Hang Lung Plaza 66, and Grand Gateway Hang Lung Plaza mostly have areas of 60–100 square meters. UBS channel research indicates these stores have signed to relocate or expand by 2026, with areas expected to nearly double and move closer to the hard luxury brand standard of 200–300 square meters.

On overseas expansion, an additional 7% VAT will be imposed on gold jewelry in mainland China in November 2025, further widening the price gap between mainland and overseas markets.

UBS expects Laopu Gold to open 4–5 new stores per year in Hong Kong, Macau, and overseas markets (including Singapore, Malaysia, South Korea, Japan, and Thailand) in 2026–2027. The net profit margin of Hong Kong and Macau stores is higher than mainland China, helping offset weak demand from price-sensitive mainland consumers.

Valuation at low since listing, cash flow inflection point approaching

Laopu Gold’s share price has dropped 57% from its late January 2026 peak, while gold prices have fallen about 27% over the same period.

UBS believes the share price decline far exceeds the drop in gold prices, sales pressure has been adequately priced in, but the potential upside in gross margin has not yet been fully recognized by the market.

Current share price reflects expected P/E of about 7x (2026) and 6x (2027), at the lowest valuation level since listing in June 2024 with crowded short positions. By comparison, domestic jewelry industry median is 10x/9x, and global luxury and jewelry industry median is 24x/21x. UBS sees Laopu Gold’s valuation as significantly too low.

UBS slightly adjusts forecasted EPS for 2026–2028 up by 0–2%, mainly reflecting gross margin improvements offsetting revenue pressure and operating deleveraging.

Free cash flow is expected to turn positive starting in 2026, supporting a 70–100% dividend payout ratio; expected dividend yield for 2026 and 2027 is about 11% and 13%, respectively.

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