Jiangsu Wuzhong 2024H1 achieved operating income of 1.207 billion yuan (+9.62% YoY) and realized net profit of 0.011 billion yuan (+417.83% YoY) after deducting non-return to mother. Among them, in the second quarter, the company achieved net profit of 0.019 billion yuan to mother and 0.013 billion yuan of net profit deducted from mother in a single quarter, achieving significant year-on-year and month-on-month improvements. Maintain a buy rating.

Key points to support ratings

Revenue achieved steady growth, and the profit side improved markedly in the second quarter. Jiangsu Wuzhong 2024H1 achieved revenue of 1.207 billion yuan, an increase of 9.62% over the previous year, and maintained steady growth. On the profit side, the company achieved net profit of 0.024 billion yuan in H1 in 2024, a year-on-year decrease of 10.75%, and realized net profit without deduction of 0.011 billion yuan, an increase of 417.83% over the previous year. The company's net profit to mother for the first quarter of 2024 was 0.005 billion yuan. Net profit after deducting non-return to mother was negative, putting pressure on the 2024H1 profit side to a certain extent. However, the company's profit side improved significantly in the second quarter of 2024, achieving net profit attributable to mother of 0.019 billion yuan and net profit deducted from non-mother of 0.013 billion yuan, achieving significant year-on-year and month-on-month improvements. The company's gross margin improved sharply in the second quarter of 2024. The gross margin was 40.66%, an increase of 9.30 percentage points over the previous year.

The medical and aesthetic business performed well, and achieved significant gross profit contributions after the launch of the core products. The medical, aesthetic, and biological sector of 2024H1 achieved a gross profit of 0.066 billion yuan from its main business, accounting for 19% of the company's total gross profit.

The company's core product, AestheFill, was approved in mainland China on January 22, 2024, and officially launched for sale in April 2024. In the first half of 2024, the number of medical and aesthetic institutions the company cooperated with continued to increase, including medical and aesthetic chain brands such as Meilai, Huahan, Art Star, Uniliger, Fuai, and Milan Baiyu.

At the same time, the company also continues to strengthen terminal doctor training to better serve the needs of beauty seekers.

Medical and aesthetic pipeline research and development continues to advance, and “self-development+cooperation” is deeply involved in the field of recombinant collagen. In terms of independent research and development, the company actively promotes pre-clinical research and development of recombinant collagen freeze-dried fiber, recombinant collagen implants, ripropyl dicaine cream, and deoxycholic acid injections, relying on Wu Traditional Chinese Medicine's R&D advantages in the pharmaceutical field. The company signed an agreement with Nanjing Dongwan Biotech in 2023 to obtain the other party's exclusive distribution rights and exclusive development rights for recombinant human collagen raw materials in the field of cooperation. The collagen is expressed through the CHO cell system and has a collagen triple helix structure. In the first half of 2024, the construction of the company's first recombinant collagen production workshop in Dongfang Beauty Valley in Shanghai was basically completed and entered the final commissioning and verification stage, laying the foundation for clinical research and industrialization of the company's recombinant collagen freeze-dried fiber and recombinant collagen implant products.

valuations

The company's net profit for 2024, 2025, and 2026 is expected to be 0.107 billion yuan, 0.228 billion yuan, and 324 million yuan, corresponding to EPS of 0.15 yuan, 0.32 yuan, and 0.45 yuan, respectively. According to the closing price on August 28, 2024, the price-earnings ratio is 54.2, 25.3 times, and 17.8 times, respectively. Maintain a buy rating.

The main risks faced by ratings

Risk of product launch failure, consumer market fluctuations, risk of product promotion falling short of expectations, and risk of changes in industry policies.