Incident: The company released its 2024 three-quarter report: 2024Q1-Q3 achieved revenue of 1.466 billion yuan, +9.47% year over year, realized net profit of 0.514 billion yuan, -4.20% year over year, and realized deduction of non-net profit of 0.49 billion yuan, or -6.71% year over year. Looking at Q3 alone, the company achieved revenue of 0.527 billion yuan, +11.88% year-on-year, realized net profit of 0.173 billion yuan, or -5.16% year-on-year, and realized deduction of non-net profit of 0.166 billion yuan, or -9.03% year-on-year.

Profit analysis: Steady growth in revenue led to an increase in related sales expenses. 2024Q1-Q3 gross profit margin 81.65%, -0.7pct yoy, net profit margin 35.03%, y-5.0pct yoy. On the cost side, the 2024Q1-Q3 sales/management/R&D expense ratios were 33.56%/4.30%/2.14%, respectively, +7.0/ -0.5/+1.0pct compared to the same period. Steady revenue growth led to a phased decline in profits due to factors such as an increase in related sales expenses and a continued increase in R&D investment.

Business update: Equal emphasis is placed on the development of mechanical products and cosmetics, and channel construction is further deepened. On the product side, the company adheres to the strategy of equal emphasis on the development of medical dressings and cosmetics, and continues to cultivate Class II and Class III medical devices to enhance the market influence of the company's medical dressings. The recombinant type III humanized collagen freeze-dried fiber and filler products under development are expected to be approved to drive growth in the future. Among them, three types of recombinant humanized collagen freeze-dried fiber have completed clinical trial registration; In terms of cosmetics, the company continues to promote and expand product categories, with mask as the main category, and rapidly expand new product categories such as secondary essence and eye mask Charging opens up space to grow. On the channel side, the company's online and offline channels are developing in a coordinated manner. Online channels stabilize Tmall's existing advantages and expand new platforms to achieve breakthroughs; at the same time, it is actively expanding the live streaming sales model to deliver customers to direct stores. The offline physical channel distribution model is developing rapidly, becoming a new growth point for offline revenue.

Investment suggestion: The company's multi-dimensional efforts in products, channels, and marketing are expected to achieve rapid development based on its leading position in the patch specialty skin care market. We expect the company's 2024-2026 operating income of 2.135/2.397/2.701 billion yuan, and net profit of 0.794/0.884/0.992 billion yuan, corresponding PE is 18/17/15 times, respectively, to maintain a “gain” rating.

Risk warning: risk of declining industry sentiment; increased risk of market competition; new product promotion falling short of expectations; risk of cosmetic policy changes