Jewelry Retailer Becomes Billionaire Amid China IPO Demand

(Bloomberg) -- Chinese gem retailer Zhou Zongwen became a billionaire when his Chow Tai Seng Jewellery Co. surged in value following its initial public offering this week.

Shares of the gold and jewelry seller rose another 10 percent Friday to 31.55 yuan ($4.58) in Shenzhen, giving Zhou a net worth of at least $1.4 billion, according to the Bloomberg Billionaires Index. Zhou, the company’s chairman, owns 65 percent of the Shenzhen-based business along with his wife and son, according to the company’s IPO prospectus.

Chow Tai Seng’s stock has reached the daily limit in both of its trading sessions since its debut on Thursday. Mainland IPOs have usually surged on their first day of trading in recent months, in part because of a regulatory cap on the price of new listings.

Enthusiasm for Chow Tai Seng’s shares reflects an optimistic outlook for China’s gold retailers combined with strong demand for new listings, according to He Minliang, a Shanghai-based analyst with Capital Securities Corp. He expects China’s jewelry market to grow about 8.2 percent this year.

Chow Tai Seng’s representatives didn’t respond to multiple phone calls and emails seeking comment.

Good as Gold

Zhou founded the company in 1999 and has grown the business using a franchise strategy that sets it apart from Hong Kong-listed competitors Chow Tai Fook Jewellry Group Ltd. and Chow Sang Sang Holdings International Ltd. Chow Tai Fook was the source of a $12.7 billion fortune for Cheng Yu-tung, who died in September 2016.

The strategy has enabled the company to grow its retail network to nearly 2,500 outlets across China, up from about 150 stores in 2006, despite having direct control over just 12 percent of those stores. Chow Tai Fook has franchised about one-third of its stores while Chow Sang Sang maintains direct control of its entire network of outlets.

“The biggest disadvantage for the company is that they don’t have enough control on the quality of the products in every store,” He said in a Thursday phone interview. 

Chow Tai Seng’s net profit margin in 2016 was 15 percent, more than double those of its Hong Kong peers. The retailer reported 2016 revenue of 2.9 billion yuan and net profit of 426.7 million yuan, according to the prospectus.

To contact the reporter on this story: Venus Feng in Hong Kong at vfeng7@bloomberg.net.

To contact the editors responsible for this story: Robert LaFranco at rlafranco@bloomberg.net, Robert Olsen, Paul Panckhurst, Peter Vercoe