Key points of investment

Q3 revenue growth accelerated month-on-month, and performance was in line with expectations: (1) 24Q1-Q3: achieved revenue of 1.466 billions/ +9.47%, gross profit margin of 81.65%, slight decrease of 0.73 pcts, sales expenses ratio of 33.56% /+7.03pcts, due to increased publicity and promotion efforts and e-commerce channel investment. The R&D expense ratio was 2.14% /+0.97pcts. The company's R&D efforts continued to increase, net profit to mother 0.514 billion/ -4.20%, net profit margin 35.03% /- 5.00pcts; (2) 24Q3:

Revenue achieved 0.527 billions/ +11.88%, net profit to mother 0.173 billions/ -5.16%, net profit to mother 32.91% /-5.91 pcts, and revenue growth accelerated month-on-month.

Strong R&D drives rapid promotion of new products, and the product matrix continues to be rich: 24Q1-Q3, the company invested 0.031 billion in R&D expenses, an increase of 100% over the previous year. (1) In terms of promotion: 24Q3, the company strongly promoted a variety of new products, covering various categories such as masks, essences, and lotions, such as launching a new cleansing essence gel in August, and lactic acid oil control and astringent skin mask to form a “anti-oil and acne removal CP”. Jointly with Cheng Yi to promote the new grapeseed firming lotion mask, white flower seed whitening lotion mask, white flower seed oil control and moisturizing skin mask Three new products, a soothing lotion mask and Shierjia Liuying Essence Water, all Supramolecular technology was applied to launch a new lactic acid essence in the lactic acid series in September, and the product line was continuously iteratively optimized to enrich the product matrix and improve core competitiveness; (2) In terms of technical reserves: The company is currently actively promoting R&D of multiple products and raw materials to increase product matrix reserves, such as screening, development and application research on key technologies in cosmetics, recombinant type III humanized collagen dressing research, etc. Currently, the company's product “Recombinant Type III Humanized Collagen Lyophilized Fiber” has passed the ethical review, and completed at the Heilongjiang Drug Administration Clinical trial registration, clinical trials can already be carried out. The Shanghai R&D Center began launch in August. In the future, the North and South R&D centers will be linked. We expect that high R&D capabilities will continue to enrich the company's product categories, bring room for business expansion, and open up a growth curve.

Online channels continue to gain strength, and e-commerce drives performance: The company continues to develop online platforms, and the online share continues to increase. With the acceleration of online technology, the company was clearly driven by the Double Eleven Promotion: (1) On the first day of Tmall Super Market:

On the first day of pre-sale on Tmall, Li Jiaqi achieved GMV of 0.022 billion, an increase of 26% over the previous year; (2) Douyin channel: According to the Flying Melon data crawler, 18 days before the Double Eleven promotion (October 8 to October 24), the company achieved GMV82 million, an increase of 103% over the previous year. We believe that as the company's product strength increases and online marketing efforts increase, e-commerce will bring more room for growth.

Investment advice: High R&D capabilities drive rapid promotion of new+online layout+medical and aesthetic reserves. The company's product matrix continues to be rich, and the company's revenue is expected to be 2.13 billion/2.387 billion/2.658 billion, up 10.2%/12.1%/11.3% year on year, net profit 0.754 billion/0.807 billion/0.86 billion, up 0.6%/7.0% /6.6 billion year on year %. The corresponding PE is 19.26X/18.00X/16.89X, maintaining the “gain” rating.

Risk warning: risk of declining industry prosperity; increased risk of industry competition; risk of product approval failure