Focusing on Big Health and Light Equipment, the compound growth rate of Big Health's performance in 19-23 was 27%. The company's predecessor, Lushang Development, began entering the health sector in 18 years with the acquisition of 100% shares of Shandong Freda Pharmaceutical Group. The real estate business was divested in November '22, and the handover was completed in October '23. The company officially switched from operating the “real estate+big health” dual business to focus on big health ecology; the company's stock price performance gradually changed from external factors such as highly related to Huaxi Biotech to internal factors such as improvements in its own governance and changes in the main beauty industry. The company's health business revenue/net profit to mother in '23 was 329/ 230 million yuan respectively, and the compound growth rate from '19 to '23 was 35%/27% respectively, achieving rapid growth. Cosmetics contributed more than 70%, making it a contribution to core revenue performance.

The cosmetics business is being accelerated, product upgrades and multiple platforms are gaining strength. The company's cosmetics 23H2 accelerated, and gross margin improved steadily. In '23, the revenue of Yilian/Dr. Aire/other brands was 13.5/8.6/210 million yuan respectively, corresponding growth rates were 27%/21%/5%, respectively, and 22H2-23H2 gross margin increased 6.9/2.3/0.2 pct respectively. Cosmetics will continue to grow rapidly in the future: 1) On the product side, Dr. Eyre created the three major matrices of “probiotics series, flash charge series, and wake-up series”, focusing on soothing, anti-aging, and whitening effects, gradually increasing the proportion of flashing/waking, expanding the customer base, and increasing the average price; Yilian keeps upgrading and increasing prices for explosive products such as sprays and split masks to create a high moisturizing series of benchmark products, enriching the product matrix, increasing the promotion of soft masks and other categories to achieve a sharp rise in volume and price. 2) On the channel side, increase investment in Douyin, innovate self-broadcast products+ make concerted efforts with Dabao; low offline base, promote offline growth by increasing the coverage of offline outlets to promote the release of large single products + actively co-create and launch new products with channels. 3) On the marketing side, Dr. Aier insisted on professional marketing. The Microecology Conference strengthened the brand mentality, and Yi Lian announced Tan Songyun as the brand ambassador to strengthen the highly moisturizing mentality. 4) On the R&D side, maintain high R&D investment (health business accounted for 4.7% in 23 years), lead in various fields such as hyaluronic acid, recombinant collagen, and skin microecology, and enhance product competitiveness.

Pharmaceuticals are steady, and profits from raw materials and properties are expected to improve. In terms of the pharmaceutical business, pharmaceutical revenue has remained at about 500 million since '18. The net profit of Akihiren Freda's subsidiary is about 20 million, the compound net profit growth rate from 18 to 23 was 9%, and the company contributed about 70.9 million in investment income in '23, which is stable overall. In terms of the raw materials business, gross margin has continued to decline in recent years due to changes in industry prices, company product structure, etc., and future pharmaceutical-grade hyaluronic acid releases are expected to increase profitability. In terms of property services, the net profit of Lushang Service was 40 million yuan in '23. Performance declined due to value-added services for non-owners. Property management and community value-added remained steady, and long-term project reserves were abundant, and it is expected that the transformation will continue.

Profit forecast and investment suggestions: From 2024 to 2026, we expect the company's net profit to be 3.8/4.8/580 million yuan, respectively, with corresponding growth rates of 24.7%/26.5%/20.6%, and corresponding PE of 21.8/17.2/14.3 times respectively. We select Huaxi Biotech, Perea, Marumi Co., Ltd., Giant Biotech, and Haohai Biotech as comparable companies. The average net profit growth rate of comparable companies from 24 to 25 is 23.0%/26.5%, and the average PE is 28.0/22.3 times. The company PE has a comparable advantage. Maintain a “buy” rating.

Risk warning: The prosperity of the cosmetics industry is declining; the growth of Dr. Yi Lian Aier falls short of expectations; the net interest rate has declined, etc.