Introduction to this report:

The revenue of the 22Q3 company was under pressure, but with active optimization of e-commerce marketing strategies, the profit side ushered in an improvement. In the future, the company's main business is expected to develop steadily, while investing in Medicine International, which is expected to expand its business boundaries.

Key points of investment:

Investment advice: Maintain the 2022-24 EPS forecast of 0.33/0.38/0.43 yuan, the target price of 17.41 yuan, and maintain the increase in holdings rating.

Revenue continues to be under pressure, and performance has improved. 2022Q1-3's revenue/return to/net profit after deducting non-net profit was $625/0.62/015 million, respectively, -18%/-0.24%/+342%, respectively. Revenue for 22Q3 alone was $2.28/0.17/015 million after deducting non-net profit, respectively -12%/+72%/+64%. Revenue was still under pressure due to the disruptions of the offline pandemic and the general consumption environment, but the company actively optimized its investment strategy, and the profit side improved. In 22Q3, the company's gross margin was -6.03pct to 4.88% year-on-year. It is expected that due mainly to rising raw material costs and a slight drop in the average selling price of laundry products under market competition, the sales expenses ratio will be sharp -13.3 pct to 24.7%. It is expected that the company will actively optimize e-commerce platform marketing to improve marketing efficiency; management expenses and R&D expenses rates are basically the same.

The main business developed steadily, gradually expanding the brand matrix and optimizing the channel structure. 2022H1's pillar brands, Lafang and Yujie, achieved total revenue of 295 million yuan, accounting for 74%, and the agency brand Ribohsi earned 23 million yuan, +29% over the same period last year. In addition, sub-brands such as VNK and T8 are being cultivated. On the channel side, the company optimizes e-commerce development routes, lays out multiple platforms, and focuses on reducing costs and increasing efficiency.

Invest in Medical-American International and find gold in the medical-aesthetic circuit. In July 2022, Lafangjia Chemical's wholly-owned subsidiary completed the subscription for 23.25% of the shares of AIH (AIH). On July 20, Medical & Aesthetic International announced again that it plans to continue to transfer 21.32 million shares to companies belonging to the Lafang family and issue an additional 36.4 million shares. It is estimated that if both subscriptions are implemented, Lafang will hold more than 50% of the shares of Medical and Aesthetic International, with a total investment of about 3.7 billion yuan. It is expected that it will enter the main holding and capitalize on the medical and aesthetic circuit for high growth.

Risk warning: unsuccessful acquisition and delivery, repeated epidemics, and high online channel marketing costs.