Kingold Jewelry: Selling At One-Third Of An Understated NAV Consisting Of Cash, Surplus Gold Inventory And Real Estate


  • Kingold is China's largest independent manufacturer of 24 carat gold jewelry.
  • The value proposition is compelling: The stock is selling at 0.35x book value per share and less than 4x prospective earnings.
  • Book asset value is understated and the assets consist of cash, gold inventory and real estate, including $160 million of surplus gold inventory.
  • Four issues which have been overhanging the stock will be resolved over the coming year, with a series of catalysts along the way.
  • The core operating business is efficient, profitable and growing.


Gold jewelry plays an important role in Chinese society as both a traditional gift and a store of value. The Chinese purchase 24 carat investment grade gold jewelry in contrast to the 18 carat gold seen in most Western jewelry. Rising incomes in China have been accompanied by an exponential growth in demand for 24 carat gold jewelry. See this report from the World Gold Council.

Wuhan Kingold was founded in 2002 by Zhihong Jia who had been previously responsible for managing gold mines owned by the PLA. The company surpassed $50 million in sales in 2007, $500 million in sales in 2010 and reached $1 billion in sales in 2014.

The company went public in 2009 and did a further round of financing in 2011 at $3.19 per share. Five years later, the sales and the book value have doubled but the share price has halved.

The shares took a beating in 2015 in response to declining volumes and a falling gold price combined with investor concerns over an opaque real estate development project. The shares have recovered from their 2015 lows but remain well below the levels of the last two rounds of equity financing. We believe that the negative issues surrounding the stock are abating and investors are starting to become intrigued by the prospect of a share price of $1.40 backed by net assets per share in excess of $5.00 consisting primarily of 24 carat gold inventory.

The Value Proposition

The value proposition for Kingold Jewelry (OTC:KGJI) is straightforward. The stated book value per share is $4.03. We will further demonstrate that the book value is understated and that the underlying market value of net assets is somewhere between $5.50 and $6.50 per share. This compares to a stock price of $1.40. Importantly, these assets are fungible, tangible assets consisting of gold, cash and real

This article was written by

Partner at Investment Adviser to a Family Office. 30 + years as a professional investor in London and New York Retired after 20 years as Chief Investment Officer of $50 billion+ fund. Looking globally for special situations where we can uncover complex and compelling value

Disclosure: I am/we are long KGJI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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