Incident: The company released the 2024H1 interim report. 24H1 achieved operating income of 3.502 billion yuan/yoy +120.7%, net profit to mother 0.412 billion yuan/yoy +308.7%, and gross profit margin of 76.5%, an increase of 7.5 PCT over the previous year. The 24H1 interim dividend was $0.75 per share, and the cash dividend amount was 0.299 billion yuan, accounting for 72.33% of 24H1's net profit to mother.

Comment:

By brand: Han Shu's performance continues to lead, and the new brand Newpage is growing rapidly one page. The three brands Han Shu, Ichiyo, and Red Elephant contributed the main revenue, totaling 3.226 billion yuan/yoy +127.1%, accounting for 92.1% of total revenue. (1) Han Suk: 24H1 revenue of 2.927 billion yuan/yoy +184.7%, accounting for 83.6% of total revenue. Sales growth accelerated and continued to maintain the leading position in the beauty industry on the Douyin channel. 24H1 Han Shu achieved a GMV of 3.444 billion yuan on the Douyin platform, which has surpassed the GMV scale for 23 years. The GMV growth rate of Hanshu's Tmall flagship store was nearly 200% year-on-year, and the growth rate of JD's self-operated flagship store was over 400%. According to industry media releases, the 24H1 Hanshu online channel GMV ranked second among domestic beauty brands, with a growth rate of 222.8%, ranking first among leading beauty brands. Among the big products, the Red Man Waist series was upgraded. The omni-channel sales of the Red Man Waist Gift Box exceeded 10 million sets during the period, and the omni-channel sales of the White Man Waist Gift Box exceeded 1.5 million sets. (2) Ichiyo: 24H1's revenue is 0.125 billion yuan/yoy -38.6%, accounting for 3.5% of total revenue, mainly due to the fact that the Ichiyo brand is in a period of transformation and adjustment, aimed at young consumers, and is looking forward to the results of subsequent adjustments. (3) Red Elephant: 24H1 revenue 0.174 billion yuan/yoy -7.9%, accounting for 5% of total revenue. Brand transformation and adjustment are beginning to bear fruit, and the decline narrows. (4) Page 1 of newpage: The brand is a new maternal and child brand released in May '22. 24H1 earned 0.161 billion yuan/yoy +173.2%, accounting for 4.6% of total revenue. The online Douyin, Tmall, and JD channels all achieved year-on-year growth of more than three digits. There were more than 6,000 offline partner maternal and child specialty stores, and the mother and child channels such as baby-friendly rooms were rearranged. (5) Other brands: 24H1 revenue 0.116 billion yuan/yoy +7.84%, accounting for 3.3% of total revenue.

Channel subchannel: Online channels are a core contributor to growth. 24H1 online/offline channels achieved revenue of 3.17/0.3 billion yuan respectively, +146%/+12% year over year. The core of rapid online growth was driven by revenue from online proprietary channels (Douyin, etc.), and 24H1 online self-operated channel revenue was 2.745 billion yuan/yoy +179%.

Channel structure optimization drives increased gross margin and cost ratio optimization. 24H1's gross margin was 76.5% /yoy+7.5pct, mainly due to a further increase in DTC's share. 24H1 sales/management/R&D/finance expenses were 20.17/0.114/0.783/0.032 billion yuan, respectively, +137.02%/+1.79%/+43.93%/-72.65%, sales expenses rate 57.60% /+3.97pct, management expenses rate 3.26% /-3.80pct, R&D expenses rate 22.36% /-11.92pct, financial expenses ratio 0.91% /-6.46pct. Among them, the sales expense ratio increased year-on-year, mainly due to the 169.2% year-on-year increase in 24H1 marketing and promotion expenses.

Profit forecast: Relying on the outstanding performance of the core brand Han Shu, 24H1 achieved rapid performance growth. We look forward to the continued strength of the main brand and the transformation and adjustment effects of many other brands. We expect net profit to be 0.903/1.171/1.409 billion yuan in 2024-2026, up 96%/30%/20% year-on-year respectively, corresponding to PE 13/10/9X on August 23.

Risk warning: Increased competition in e-commerce channels has led to an increase in cost rates, and nurturing new brands and creating second growth points falls short of expectations.