Event: The company released its 2024 semi-annual report. 2024H1 achieved revenue of 1.404 billion yuan, a year-on-year increase of 6.97%, achieved net profit of 0.235 billion yuan, a year-on-year increase of 14.64%, and achieved deduction of 0.23 billion yuan without return to mother, an increase of 22.66% over the previous year. Q2 achieved revenue of 0.758 billion yuan, up 8.10% year on year, achieved net profit of 0.138 billion yuan, up 11.03% year on year, and achieved deduction of 0.135 billion yuan without return to mother, an increase of 16.26% year on year.

Profit analysis: Overall gross margin decreased slightly due to collection pressure, and rates continued to improve. The 2024H1 gross profit margin was 70.5%, -0.5pct year on year. Mainly due to ophthalmology & orthopedic collection, the price decline offset the increase in hyaluronic acid's share in gross margin. The net profit margin was 15.5%, -0.4 pct year on year. On the cost side, 2024H1 sales/management/R&D expenses rates were 28.9%/14.9%/8.9%, respectively, -3.2/-0.3/+1.2pct.

The medical and aesthetic hyaluronic acid sector continues to grow rapidly, and Haimei Yuebai is preparing to go public. Medical beauty 2024H1 earned 0.634 billion yuan, accounting for 45%, +25.72%, of which hyaluronic acid revenue was 0.417 billion yuan, +51.30%; RF and laser equipment revenue was 0.136 billion yuan, or -11.54%; and human epidermal growth factor revenue was 0.081 billion yuan, or +8.11% YoY. Haimei Yuebai was approved in July 2024. Based on the world's first organic crosslinking process independently developed by the Group, it is the only hyaluronic acid product in China that uses the natural product lysine as a crosslinker. It is expected to provide additional volume to the medical and aesthetic sector after official launch. At the same time, the company has abundant reserves of medical and aesthetic research pipelines such as water light, collagen, hydroxyapatite, etc., which is expected to support medium- to long-term development.

The ophthalmology business is under relative pressure, and the overall performance of orthopedics is steady. The ophthalmology sector's 2024H1 revenue was 0.452 billion yuan, accounting for 32%, or -6.02% year-on-year. Among them, revenue from intraocular lenses/ophthalmic viscoelastic materials/optometry terminal products/other ophthalmology products was 1.81/0.50/0.108/0.094/0.019 billion yuan, respectively, with a year-on-year growth rate of -10.84%/-10.16%/-2.60%/-2.26%/+25.99%. The decline in intraocular lens revenue is mainly due to the increase in sales driven by collection. It is expected that the second half of the year will drive revenue growth through optimization of the internal structure of the product; OK Mirror's old products declined, but revenue from “Meierkang MyOK” and “Children's Enjoy” prescription tablets increased by 48.6%/189.9%, respectively. 2024H1 orthopedic revenue was 0.233 billion yuan, +0.42% year over year. Anti-adhesion and hemostasis revenue was 0.069 billion yuan, -2.49% YoY.

Investment advice: The company's operations continue to develop steadily, hyaluronic acid in the medical and aesthetic sector bucked the trend, and Haimei Yuebai was successfully approved. It is expected to contribute more after listing. Water light, collagen, etc. are rich in reserves in the research pipeline. We expect the company to achieve operating income of 3.05/3.53/4.06 billion yuan and net profit of 0.51/0.62/0.73 billion yuan to mother in 2024-2026. The corresponding PE was 27/23/19 times, respectively, maintaining the “gain” rating.

Risk warning: macroeconomic downside risk; risk of policy changes; new product development falls short of expectations