Lao Feng Xiang B-share (900905 CH)

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Lao Feng Xiang (900905 CH - US$2.1 billion) is the largest jewelry manufacturer and retailer in China, with an estimated market share of 7.5%.

The company has a long history dating back 175 years. The name “Lao Feng Xiang” means “old phoenix” in mandarin Chinese, symbolizing rebirth. It was one of the earliest manufacturers and retailers of precious metals in Shanghai, and it was famous for its gold jewelry, utensils, pearls, jades, and diamonds. Celebrities would often wear Lao Feng Xiang jewelry to special events.

After the Communist Revolution in 1949, the jewelry industry suffered a slump as wearing gold was considered “bourgeois”. However, the business restarted after Deng Xiaoping’s reforms in the early 1980s. Lao Feng Xiang eventually ended up listed on the Shanghai Stock Exchange where it remains today.

Lao Feng Xiang’s niche is traditional gold jewelry. The designs tend to be simple and timeless, in contrast to, say, Chow Tai Fook’s more trendy designs. Customers buy Lao Feng Xiang’s jewelry not only as accessories but also as investments － to protect their capital from inflation.

And the company has been immensely successful. Over the past 20 years, it’s compounded revenues at 20% and earnings at 32%. While the numbers for the past ten years have been more modest, the industry has suffered significant headwinds after the gold bubble burst in 2012. In light of these headwinds, Lao Feng Xiang has performed admirably.

Since 2022, China’s gold market seems to have woken up, thanks to the depreciation of the Renminbi against the US Dollar. In 2024, gold trading volumes hit a new high. Shanghai gold prices now trade at a premium to world prices. China’s central bank is also aggressively buying gold.

As for Lao Feng Xiang itself, most of the growth has historically come from new store openings. They have about 6,000 stores across mainland China, and they’re now expanding at a rate of 500 to 600 stores per year, implying high single-digit growth.

Almost all of these stores are operated under a franchisee structure, with Lao Feng Xiang selling the products to them at marked-up prices, along with modest joining fees and fixed brand usage fees.

Whether we’ll see positive same-store sales is unclear, but at least Lao Feng Xiang has maintained its market share compared to Chow Tai Fook, and gained market against most of the other companies in the industry.

On my conservative numbers, Lao Feng Xiang’s US Dollar-denominated B-share trades at a 2026e P/E of 5.7x with a 7.0% dividend yield, assuming that management sticks to its guided 40% payout ratio.

Note that the B-share is identical to the A-share except that foreigners can buy it and that it trades in US Dollars rather than Chinese Yuan. The B-share currently trades at a 65% discount to the despite identical voting and cash flow rights.

Management has previously said it intended to convert the B-share to a Hong Kong listing. While these plans seem to be on hold for now, if executed, it would most likely lead to an uplift in the valuation multiple.

The biggest question mark in my mind is the resignation of former Chairman Shi Lihua in 2022. While Lao Feng Xiang is a state-owned enterprise and is run as such, I still can’t help thinking that Shi has been a part of the company’s success since he took over in 2001.

Another risk is that the market seems to be getting saturated, with Chow Tai Fook expanding aggressively on the mainland over the past five years. Then again, it’s clear that the industry is enjoying a resurgence now, thanks to the renewed interest in gold.

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