Incident: In the first half of 2024, the company achieved operating income of 2.811 billion yuan, -8.61% YoY, and net profit to mother 0.342 billion yuan, or -19.51% YoY. Among them, 24Q2 achieved operating income of 1.45 billion yuan, or -18.09% year-on-year, and net profit to mother of 0.098 billion yuan, or -56.10% year-on-year.
The medical terminal business is growing strongly, and functional skincare products are facing short-term challenges. By business, 24H1 raw materials/medical terminals/functional skincare products achieved operating revenue of 0.63/0.743/1.381 billion yuan, +11.02%/-29.74%, respectively. The product structure of the raw materials business continues to be optimized, and sales of innovative hyaluronic acid products and other bioactive substances are impressive; dermatological medical products are driving a high increase in the medical terminal business, and the coverage rate of medical and aesthetic institutions and the number of cooperative products from single agencies have increased significantly; the functional skincare business is in a deep-sea zone of management transformation, and the tightening of business measures and market expansion is not fully developed, putting pressure on the business in the short term.
The results of reducing costs and increasing efficiency have been remarkable, and the quality of operations has improved. 24H1's gross margin increased by 0.72 pcts to 74.52% year-on-year, mainly due to the increase in the share of high-margin medical and aesthetic products. In terms of expenses, 24H1's sales/management/R&D rates were 41.93%/8.77%/7.13%, respectively -4.25/+2.09/+1.06 pcts year-on-year. On the one hand, the company has achieved remarkable results in reducing costs and increasing efficiency, and sales rates have been significantly optimized; on the other hand, one-time expenses brought about by management changes have affected short-term profits and losses. At the same time, R&D investment continues to grow, and management and R&D rates have increased. Taken together, 24H1 net margin fell 1.59pcts year over year to 12.11%.
Management changes continue to advance, and R&D capabilities are constantly being strengthened. On the production side, the sterile HA production line has completed trial production, the pilot transformation platform has been fully completed, and manufacturing and industrial transformation capabilities have continued to improve. On the management side, the company actively optimizes business processes, organizational talent development, salary structure adjustment, performance system improvement, and digital intelligence transformation to focus on achieving high-quality development. On the R&D side, 6 new bioactive ingredient products were launched, and Runzhige was approved for listing in July '24, further strengthening the technical barriers and market competitiveness of the company's products.
Investment advice: As a global leader in hyaluronic acid, the company collaborates on business development in raw materials, medical terminals, functional skincare products, etc., and management changes are gradually progressing, and it is expected to enter a new stage of high-quality growth. The company's EPS is expected to be 1.42/1.78/2.20 yuan from 2024 to 2026, maintaining a “buy” rating.
Risk warning: Competition in the industry intensifies; new product promotion falls short of expectations; skincare business recovery falls short of expectations.