SOO KEE GROUP: Taps into PRC market through JV with leading jeweller

L-R: Mary Lim,  Soo Kee COO | Daniel Lim, Soo Kee CEO | Dato’ Sri Dr. Peter Lim, Soo Kee Chairman | Chau Tsan Kwan, Global Crown Group Director | Lartin Lai, Global Crown Group CFO Event: MOU ceremony between Soo Kee Group and Global Crown Group at Soo Kee's HQ on 19 July 2017. (Photo: Company) Soo Kee Group has bagged another deal to venture outside its traditional markets of Singapore and Malaysia, following on its foray into Thailand. The Group’s bespoke diamond jewellery arm, Love & Co International, a niche player in the bridal market, signed an MOU on Thursday (19 July) with Global Crown Group Holding to form a joint venture to sell bridal jewellery in China and Hong Kong. Global Crown is the parent company of Shenzhen Batar Investment Holding Group Co., Ltd. (“Batar Group”), a leading PRC gold jewellery player. Its value chain ranges from design, manufacturing, wholesale, to distributorship. It has production facilities in Shenzhen, Hangzhou, Tianjin, Zhengzhou, and Chengdu, and owns more than 400 franchises and retail jewellery stores across the PRC. The Soo Kee Group, which is strong in the field of customising  jewellery design, currently has over 60 showrooms, all of which are in Singapore and Malaysia. Singapore, which accounted for about 90% of the Group’s FY2016 revenue, has less than 30,000 marriages registered annually. That is less than 1% of China, where over 10 million marriages are registered annually.

“Batar Group is a leading gold jewellery company in China that designs and wholesales to most major jewellery brands in China and even some brands from Hong Kong,” said Soo Kee Group CEO Daniel Lim at an investor briefing on Thursday (20 July).

“It doesn’t have as much exposure to the diamond market, and that’s where we provide synergy.

"We intend to use China’s well-established franchise model: Revenue comes from mark-ups on product sales, franchise fees, and management fees. The franchisee also pays us a refundable deposit. "By franchising to strong provincial players, we can achieve our targets without paying too much school fees." - Daniel Lim CEO Soo Kee Group (Photo: Company)

“Risk management was a key consideration for us when venturing into China as a retail jeweller because of the problem with counterfeit goods there.

“We are very happy that we have finally found a strong local partner to work with,” he said.

Soo Kee Group will initially invest RMB 27.5 million (S$5.6 million) for a 55% stake in the joint venture company, Diamond Avenue. Batar Group will hold the remaining 45%.

Diamond Avenue plans to establish 550 points of sales (including franchised outlets) in China that will contribute a targeted revenue of RMB 2 billion in FY2022.

That works out to revenue contribution of RMB 1.1 billion (S$222 million based on current exchange rates).

Wedding jewellery sales accounts for more than half of the total consumption volume of jewellery in the PRC, according to a study by the Hong Kong Trade Development Council (HKTDC).

It found that the PRC market for retail jewellery stores of a reasonable scale was as large as RMB 306.9 billion in 2015.

The Group has observed increasing demand for exclusivity and personalisation in bridal jewellery. It expects as much as three quarters of the post-80s and 90s generations in the PRC’s first-and-second-tier cities to choose bespoke diamond rings for their wedding.

On 7 July, Love & Co International entered into a joint venture agreement with Aurora Design Co Ltd, a leading jewellery retail chain with more than 170 stores in Thailand. Love & Co International will invest THB 18 million (S$734,000) for a 40% stake in the joint venture company which will be its exclusive distribution agent in Thailand.  It intends to open at least 20 Love & Co. retail points in key Thai cities over the next 5 years.

The joint ventures enable the Group to establish a foothold in Thailand and China by leveraging on its local partners’ extensive retail network and experience.

♦ CEO Daniel Lim on PRC expansion plans

CEO Daniel Lim presenting to investors on 20 July. (Photo by Sheryl Sim) Q: What is the diamond retail landscape in China? The large players like Chow Tai Fook, Chow Sang Sang, and Chow Tai Seng are general purpose jewellery chains. Concept stores like Love & Co. that focus on the bridal market are rare. Our partners think that Love & Co.'s solutions can bring fresh air to the industry. Stock price  14.2c 52-week range 12c - 16.9c Market cap S$79.875m Price Earnings 12.35x Dividend yield 3.52% Source: Company / Bloomberg Q: What are your plans in the first year? After the MOU is formed, the next step is to iron out the terms of the joint venture agreement. Then, we inject the agreed investment into the operating subsidiary. The JV will be based in Hong Kong. A team in Shenzhen will establish flagship stores and recruit franchisees. We are targeting to achieve at least 50 points of sales within one year. The leading jewellery brands in China have two to three thousand stores. There is still growth potential as PRC cities are becoming more and more urbanized. Our target of achieving 550 points of sales is a conservative one. Q: What is your pricing strategy for China? Jewellery retail prices in China are higher relative to Singapore and Hong Kong.

For Soo Kee Group's 1QFY2017 results media release, click here.