The company released the 24H1 interim report, achieving operating income of 3.5 billion yuan, a year-on-year increase of 120.7%, and a net profit of 0.4 billion yuan to mother, an increase of 297% over the previous year.

Han Shu continues to grow rapidly, and the one-page brand is expected to create a second growth curve. By brand, 1) Han Shu: 24H1's revenue increased 184.7% year on year. Han Shu continued to maintain the leading position in the Douyin channel beauty industry. GMV ranked first among beauty brands in the first half of the year, reaching 3.44 billion, surpassing GMV for the whole of last year. At the same time, Han Shu also achieved rapid development on other e-commerce platforms. As of 24H1, the GMV of Han Shu's Tmall flagship store increased by more than 200% year over year, and the JD self-operated flagship store increased by more than 400% year over year. 2) Ichiyo: 24H1 revenue fell 38.6% year over year. 3) Red Elephant: 24H1 revenue fell 7.9% year on year. Red Elephant continues to drive brand transformation and focus on the CUHK school-age market. At the product level, more new children's makeup products have been launched, which are popular in the market. 4) One page: 24H1's revenue increased 173.2% year on year, and 24H1 achieved more than three-digit growth in GMV on the Douyin, Tmall, and JD channels; offline, One-page cooperated with more than 6,000 mother and child specialty stores and laid out baby-friendly channels such as baby-friendly rooms.

Online channels lead growth. 24H1's online and offline channels grew 146% and 12% year over year. Online revenue accounted for 90.6% in the first half of the year. Among them, online self-employment, online retailers, and online distributors increased 179%, 108.2%, and -19.1% year-on-year respectively. The sharp increase in online self-employment was mainly due to high growth on platforms such as Douyin and Tmall.

Gross margin increased dramatically, and profitability improved markedly. 1) Gross profit margin: 24H1 achieved a gross margin of 76.5%, an increase of 7.5 pct over the previous year, mainly due to the increase in the share of DTC channels. 2) Expense ratio: 24H1 sales, management, and R&D expenses increased by 4 pct, -3.8 pct, and -1.2 pct, respectively. Among them, sales expenses increased dramatically, mainly due to the company increasing brand exposure, seizing new channel opportunities, and increasing investment in brand promotion and channel construction. 3) 24H1 achieved a net interest rate of 11.8% to mother, an increase of 5.4pct over the previous year.

Against the backdrop of weak consumption in the first half of the year, brands such as Han Shu and Yipage performed very well, indicating that the company's multi-brand and multi-category matrix has initially taken shape, and we look forward to subsequent performance in categories such as care and high-end anti-aging. We believe that the company's solid international R&D foundation and flexible and efficient organization and incentive mechanisms are conducive to its long-term sustainable growth.

According to the semi-annual report, we adjusted the profit forecast and introduced the 2026 profit forecast. The company's earnings per share for 2024-2026 are $2.26, 2.92, and 3.65 (previously $2.06 and 2.62 for 24-25), respectively. Referring to comparable companies, the target price is 47 HKD (1 RMB = HK$1.095). Considering the company's outstanding performance and rising brand potential, the rating was raised to “buy”.

Risk warning: Competition in the industry intensifies, promotion of new brands and categories falls short of expectations, etc.