Key points of investment:

The company released 24-year interim results, in line with expectations: 24H1 revenue of 3.502 billion yuan/yoy+ 120.7%, net profit of 0.412 billion yuan/yoy+ 308.7%. Profitability & dividends: 1) gross profit margin of 76.5% (+7.5pct), mainly due to increased DTC share; 2) sales rate of 57.6% (+4pct), increased online investment; 3) management fee rate 3.25% (+1.7pct); 4) R&D fee rate 2.2% (-1.2pct), investment of over 7800W (yoy+ 44%), successful filing of self-developed cyclic hexapeptide-9; 5) net profit margin 11.78% (+5.42pct). The dividend payout ratio continued to rise. After listing, the cumulative dividend amount reached 0.78 billion yuan, 24H1 dividend of 0.75 yuan/share, and the dividend payment rate reached 74.4%. Basically, earnings per share increased by 304%.

By brand: New product introduction New continuous verification. 1) Han Shu's revenue was 2.927 billion yuan/ +184.7%, which increased to 83.6%. Specifically: ① Han Shu Hongman Waist sold over 1000W sets across channels. The 2.0 series was the world's first self-developed ring hexapeptide; ② Bai Man Waist sold over 150W sets across channels, accounting for 13% +. 2) Ichiyo's revenue is 0.125 billion yuan/ -38.6%, accounting for 3.5%. The main reason is that Ichiyo is undergoing transformation and adjustment, and subsequent Ichiyo Skincare will be split into separate marketing operations. 3) Red Elephant's revenue was 0.174 billion yuan/ -7.9%, accounting for 5.0%. The decline narrowed, and the brand transformation began to bear fruit. 4) NewPage's one-page revenue was 0.161 billion yuan/ +173.2%, accounting for 4.6%. The second growth curve soared. Focusing on effective skin care and sensitive skin for infants, the customer unit price and profit margin are high. We expect annual revenue to exceed 0.4 billion yuan.

By channel: Online omnichannel performance growth rate reached 223%. 1) Online revenue of 3.172 billion yuan/ +145.62%, which further increased to 90.6% (+9.2pct). Among them, the Douyin 24H1 GMV reached 3.44 billion yuan. 2) Offline revenue is 0.3 billion yuan/ +12%, accounting for 8.6% (-8.3pct). The increase in distribution revenue is mainly due to the company continuing to promote offline dealer cooperation and explore the offline market.

By category: 1) Skincare revenue was 3.108 billions/ +142.3%, accounting for 88.8% (+7.9pct), mainly due to the increase in Han Shu's revenue.

2) Maternal and child care revenue 0.337 billion/ +30.2%, accounting for 9.6% (-6.7pct), mainly due to NewPage's one-page contribution.

As one of the cosmetics with the strongest certainty of growth, Shanghai's managers and executives have accumulated a cumulative increase of more than 3,500 HKD since the beginning of the year. We believe it: 1) “Channel & marketing acumen and strong certainty”: leading the growth rate of online beauty, dominating Douyin and Tmall, returning to offline, good at capturing traffic trends and catering to cost-effective consumption; 2) “High multi-brand ceiling”: forming the Han Shu superbrand, cooperating with multiple brands such as the same leaf, red elephant, and one-page supply chain fission; 3) “R&D & Strong:” R&D center, 300+ people R&D team, more than 90% of products are self-produced and sold China and Taiwan empowers multiple brands and cooperative brands.

Benefiting from the current cost-effective consumption environment, the import substitution trend of domestic goods, the multi-brand layout in the US, and actively increasing the cleaning and other tracks, the product and talent reserves are rich, and the revenue ceiling is high. Net profit for 24-26 is predicted to be 0.925/1.24/1.507 billion yuan, +101%/+34%/+22% year-on-year, corresponding PE is 14/10/9 times, maintaining the “buy” rating.

Risk warning: Consumption falls short of expectations, changes in market demand, increased industry competition, rising raw material prices, declining traffic on advantageous platforms, etc.