Key points of investment:

The company released its quarterly report for '24. Performance fell short of market expectations, and Q3 net profit was under pressure. 1) 24Q1-Q3 revenue was 4.178 billion yuan, up 1.45%; net profit to mother was 0.209 billion yuan, down 4.87%; net profit not attributable to mother was 0.18 billion yuan, up 11.29%. 2) 24Q3 revenue was 1.265 billion yuan, a decrease of 6.80%; net profit to mother was 0.042 billion yuan, a decrease of 17.21%; net profit not attributable to mother was 0.04 billion yuan, an increase of 10.60%.

Gross margin increased, and net profit margin declined slightly. 1) Profitability: 24Q1-Q3 gross profit margin 58.92% (+1.34pct), net profit margin to mother 5.01% (-0.24pct). 2) Expense rate: 24Q1-Q3 sales expense rate 39.83% (-1.08pct); management fee rate 8.72% (+0.71pct); R&D expense ratio 1.95% (+0.10pct).

Leading regional medical and aesthetic institutions with strong in-vitro incubation capabilities. In September, the company issued an announcement to invest in the establishment of Langxi Ziyan to officially enter upstream equipment production to strengthen and enhance the stability and bargaining power of the upstream medical and aesthetic supply chain. By setting up a medical and aesthetic industry merger and acquisition fund to cultivate and incubate potential medical and aesthetic companies in vitro, the company continuously promotes the entire medical and aesthetic business chain and national expansion, seizes more medical and aesthetic market share, and continuously improves brand chain benefits, helping the company reduce costs and increase efficiency.

The company is driven by the fashion womens+green baby+medical beauty troika. In the future, the company will continue to lay out through self-building+mergers and acquisitions to maintain an “increase” rating. Currently, the competitive pattern of medical and aesthetic institutions is scattered, and it is expected that they will focus on leading players in the future. The company promotes the 1+N strategy layout through endogenesis and outreach, and expects the scale of the company's medical and aesthetic business to continue to grow in the future. We maintain our original profit forecast. We expect net profit to mother of 0.304/0.347/0.407 billion yuan for 24-26, corresponding PE 23/20/17 times. Considering that the company's medical and aesthetic business is still expanding, there is plenty of room in the future to maintain the “gain” rating.

Risk warning: Stricter medical and aesthetic regulations; brand damage due to medical accidents; clothing business inventory risk, etc.