The company released its 2024 semi-annual report. 2024H1 achieved operating income of 1.404 billion yuan, up 6.97% year on year; net profit to mother 0.235 billion yuan, up 14.64% year on year; net profit after deducting 0.23 billion yuan, up 22.66% year on year. 2024Q2 achieved operating income of 0.758 billion yuan, up 8.10% year on year; net profit to mother 0.138 billion yuan, up 11.03% year on year; net profit after deducting 0.135 billion yuan, up 16.26% year on year.

Opinion: The total amount of hyaluronic acid is leading to a high increase in revenue in the medical and aesthetic sector. “Sea Meimei Moon White” has been approved and is expected to become a new hit. The implementation of collection has led to a drop in the price of artificial crystal terminals. Increasing the share of high-end products and optimizing the product portfolio through collection is expected to hedge against the impact of price reductions. As an agent for the old brand OK Mirror, growth was weak due to weak consumption and increased competition, and its new independent brands performed brilliantly. The development of innovative ophthalmology products is progressing smoothly, and the product line continues to be rich.

Hyaluronic acid is leading the growth of the medical and aesthetic sector, and Haimei Yuebai's approval is expected to create the next hot product. The 2024H1 medical aesthetic and wound care business revenue was 0.634 billion yuan (up 25.72% year on year), accounting for 45.22% (up 6.68% year on year). 1) Hyaluronic acid: Revenue of 0.417 billion yuan (year-on-year increase of 51.30%). High-end products such as the third-generation hyaluronic acid “Haimeiyun” and “Haimeiyun” achieved rapid growth, and first-generation hyaluronic acid products also achieved relatively rapid growth. In July 2024, the fourth-generation hyaluronic acid product “Haimei Moon White” was approved. It has characteristics such as better long-term safety, longer efficacy, and can stimulate local collagen growth. It will continue to support the medium- to long-term development of the hyaluronic acid business with a product portfolio that differentiates the function and price positioning of the previous three generation hyaluronic acid types. 2) Radio frequency and laser equipment: Revenue of 0.136 billion yuan (year-on-year decrease of 11.54%). Starting in April 2024, radio frequency treatment equipment without a registration certificate will not be allowed to be produced, imported and sold, which has had a certain impact on the company's domestic sales of household and lifestyle beauty products.

The optimization of the structure of ophthalmology products is expected to hedge against the impact of collection, and is progressing smoothly in the research pipeline. The ophthalmology business revenue was 0.452 billion yuan (down 6.02% year over year). 1) Cataract business: revenue of 0.232 billion yuan (down 10.70% year-on-year). Artificial lens revenue was 0.181 billion yuan (down 10.84% year on year), and prices declined due to collection execution. By increasing the share of high-end products and optimizing the product portfolio to hedge the price impact, sales of mid-range pre-assembled aspherical products and high-end regional reflective bifocal products increased 25% and 12%, respectively. 2) Myopia prevention, control and refractive correction business: revenue 0.201 billion yuan (2.44% year-on-year decline). The revenue from the optometry materials business was 0.108 billion yuan (down 2.60% year on year), which was mainly affected by downstream manufacturers on the periodicity of raw material preparation. Revenue from optometry terminals was 93.53 million yuan (down 2.26% year on year), mainly due to weak consumption and increased competition, which led to a decline in revenue from the mature brand “Hengtai Hiline”, while revenue from the new products “Meierkang MyOK” and “Tongxiang” prescription tablets increased by 48.6% and 189.9%, respectively. 3) R&D progress: Products such as hydrophobic modeled astigmatism, multi-focus, tri-focus, and hydrophilic continuous vision artificial lenses are progressing smoothly, and the product line continues to be rich.

The gross margin fluctuated, and the profit-side growth rate was faster than the improvement in the expense ratio during the revenue-side period. 2024H1's gross margin was 70.51% (“0.53 pct year-on-year decline). The slight decline in gross margin was mainly due to a decline in the prices of products such as artificial lenses and viscoelastic agents due to collection, but the increase in revenue share of high-margin hyaluronic acid products continues to drive up overall gross margin. Future ophthalmology product line structural optimization is expected to improve gross margin. The company's expense ratio improved during the period. The sales expense ratio was 28.86% “(down 3.21pct year on year), the management expense ratio was 14.85%” (down 0.29pct year on year), and the R&D expense ratio was 8.93% (up 1.21pct year on year).

Profit forecasting and investment advice. The ophthalmology business is affected by factors such as collection, weak consumption, and competition. We expect the company's revenue in 2024-2026 to be 3.002, 3.459, and 3.929 billion yuan, respectively, up 13.1%, 15.2%, and 13.6% year on year; net profit to mother will be 0.506, 0.622, and 0.749 billion yuan, respectively, up 21.7%, 22.8%, and 20.4% year on year; corresponding PE is 28X, 23X, and 19X, maintaining the “buy” rating.

Risk warning: Sales and promotion of new products fall short of expectations; increased risk of market competition; risk of industry policy changes, etc.