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RedChip Intiates Coverage on KGJI $9.60 Target Price

Largest manufacturer and distributor of 24K gold jewelry in China with strong brand image and high growth prospects.

COMPANY OVERVIEW
Kingold Jewelry, Inc. (“Kingold” or “KGJI”), is engaged in the design, manufacture and sale of gold jewelry in People’s Republic of China. Located in the central part of China, including Hubei, Hunan, Henan, Jiangxi, Anhui and Sichuan Provinces, the Company offers a wide range of products, including 99.9% and 99% pure gold necklaces, rings, earrings, bracelets, pendants and
gold bars. As a member of the Shanghai Gold Exchange, the sole supplier of gold in China, KGJI enjoys significant pricing power and a competitve advantage over non-members.

INVESTMENT RATIONALE
Economic trends support jewelry market growth: China has registered strong average annual GDP growth of 9.3% and personal disposable income growth of 10.6% over the last decade creating an affluent middle class with an increasing propensity to spend on luxury goods. It is estimated that by 2015, China could surpass Japan as the world’s top consumer luxury market. Of the
luxury goods in demand, gold jewelry is the country’s third largest consumer hot spot, eclipsed in size only by real estate and automobiles. Largest manufacturer of 24K gold jewelry in China: With an expected 18 tons of annual production capacity by the end of 2010, Kingold is the largest manufacturer of 24 Karat gold jewelry in China. Demand for this purest form
of gold accounts for at least 80% of the total gold jewelry demand in China. Despite being soft and not very durable for jewelry, 24 Karat gold is crafted as designer pieces worn for special occasions and bought as investment.

Potential launch of retail network: KGJI is exploring the development of a retail store network to be operated under the Kingold brand name. The retail markup from the wholesale price is typically around 30%, depending on the complexity of design and other factors. The Company’s retail revenue, generated through one on-site store, accounted for a meager 0.1% of overall sales in 2009. Though the plan is still in the inception stage, the Company will be better able to gain higher bargaining power with distributors and wholesalers should it establish a strong foothold in this segment.

For the full KGJI Analyst report KGJI Page