Daiwa released a research report stating that China's Ministry of Finance recently announced a new policy reducing the VAT deduction for jewelry retailers from 13% to 6%, increasing gold procurement costs by approximately 7%. The policy, effective from November 1, 2025, to December 31, 2027, is expected to lead companies like LAOPU GOLD (06181) and CHOW TAI FOOK (01929) to pass these costs onto consumers. Daiwa remains unconcerned about the long-term impact on gross margins for gold jewelry stocks.

The bank anticipates the policy may trigger a preemptive buying surge ahead of expected price hikes. However, it believes the news will dampen short-term sentiment for gold jewelry stocks, especially as international gold prices have retreated from recent highs—a move Daiwa views as healthy.

For companies with a higher proportion of weight-based pricing products, the urgency to pass on cost pressures is greater due to typically lower margins. For example, CHOW TAI FOOK, where about 80% of gold jewelry sales follow weight-based pricing, is expected to fully transfer the costs eventually.

Daiwa also highlights a secondary benefit: sales in Hong Kong and Macau (13% of revenue) may strengthen as products in these markets remain unaffected. Regarding LAOPU GOLD, its significant price hike on October 26 has already offset recent gold price increases, minimizing immediate margin risks. Competitors' broad price adjustments for weight-based products could make LAOPU GOLD’s offerings relatively more attractive, potentially accelerating consumer purchases.

The bank sees low likelihood of further price hikes by LAOPU GOLD before 2026, given three increases this year. Daiwa maintains "Buy" ratings for both LAOPU GOLD and CHOW TAI FOOK but prefers LAOPU GOLD in the near term due to its recent price adjustments and higher proportion of fixed-price product sales. Despite the policy change, Daiwa expects both companies to outperform Q4 2025 sales forecasts.