China jeweller Chow Tai Seng plans public listing in Shenzhen

Mainland China jeweller Chow Tai Seng plans to go public in Shenzhen with an initial public offering to raise 1.46 billion yuan (HK$1.63 billion) to fund its expansion.

The Shenzhen-based jeweller could be confused with Hong Kong jewellers Chow Tai Fook and Chow Sang Sang by many mainland consumers, but has no connection with the two Hong Kong rivals.

“The brand is reminiscent of the Hong Kong ones that I am familiar with,” said Winnie Wang, a Shanghai consumer in her 30s. “Though I haven’t tried any Chow Tai Seng [jewellery] yet.”

While the jeweller has to battle competitors to win over discerning consumers in major cities like Shanghai and Beijing, the home-grown company is leveraging its sprawling mainland network, especially in lower-tier cities, to achieve rapid earnings growth.

By the end of June Chow Tai Seng had a network of 2,288 outlets on the mainland, according to its prospectus submitted to the China Securities Regulatory Commission in November. Of these, nearly 2,000 were franchise operations while 294 stores were self-operated, with the locations mainly in third- or fourth- tier cities.

Net profits in 2015 rose 9 per cent year on year to 353 million yuan while earnings in 2014 were up 33 per cent, delivering a compound annual growth rate of 20 percent since 2013, the company said. In the first half of 2016 it earned net profits of 213 million yuan.

The company said it plans to use the IPO proceeds to expand its network by adding 120 self-operated stores and 1,000 franchised outlets, bolstering the network by 49 per cent to 3,408 in total. It also plans to use money raised to strengthen its design capability and improve its information technology and e-commerce system.

Zhang Yongtao, vice chairman of the China Gold Association, said having a solid footing in lower-tier cities could be an effective strategy for jewellers to gain a competitive edge and to benefit from the huge potential buying power in the country’s emerging regions.

“Consumers in major cities are more knowledgeable and also enjoy more choices such as overseas shopping,” he said. “In comparison, heavy advertising in state broadcasters [like CCTV] could build up brand awareness in lower-tier cities.”

Reggie Jin, managing director of marketing consultancy Kantar Added Value, said familiarity and having a similar name to its Hong Kong competitors could be a double-edged sword for the mainland brand.

“A faintly familiar brand name may help increase store visits or trial purchases to some extent, especially when the consumers are less sophisticated or lack category knowledge,” he said. “But it could also disappoint consumers if it fails to meet their expectations.”

Jin said a truly powerful brand should have the ability to “create resonance in consumers’ hearts, not just their eyes”, and enterprises should offer a holistic brand experience on top of quality products to build a strong brand.

The CSRC, the top securities regulator on the mainland, hasn’t yet approved the jeweller’s IPO application.