Incident: The company released its 2024 three-quarter report. In the first three quarters, it achieved revenue of 5.73 billion yuan, -26.3%; realized net profit due to mother of 0.87 billion yuan, or -54.3% year on year; realized net profit deducted from non-mother of 0.81 billion yuan, or -55.1% year on year. Among them, 24Q3 achieved revenue of 1.12 billion yuan, or -48.8%; realized net profit attributable to mother of -0.02 billion yuan, or -106.3% year-on-year; realized net profit deducted from non-mother of -0.02 billion yuan, or -107.0% year-on-year.

Revenue declined year-on-year due to weak demand, price competition, and digestion of old product inventories. The company's revenue in the 24Q3 single quarter was under pressure, down 48.8% year on year. We think it was mainly affected by weak consumption power, increased price competition in the industry, and the absorption of old product inventories by the two major products. By brand, 24Q3 main brand/ LifeSpace domestic/ LSG overseas revenue was -54.4%/-62.6%/-41.9%/-27.3%, respectively. The main brand and the Jianli Duo brand declined significantly due to inventory digestion of the two major products, protein powder and Jianli Duo.

By channel, the company's online/offline revenue in the first three quarters was -23.4%/-29.1%. The offline pharmacy channel is expected to be more pressured by declining traffic and digestion of old product inventory.

Competition in the industry has intensified, and short-term performance is under pressure. Gross margin fell 2.6 pct to 65.3% year on year in 24Q3. We expect that the main reason is still the intensification of industry price competition, which puts pressure on online gross margin and the impact of rising prices of some raw materials. The 24Q3 sales/management/ R&D/ finance ratio of +12.8pct/+6.7pct/+2.2pct/ remained flat to 54.0%/13.3%/4.2%/-0.3% year over year. The rate increase was mainly affected by the decline in revenue, but the absolute value of sales expenses decreased significantly year-on-year.

The trend is improving month-on-month, and the game is expected to be lightweight in 2025. Looking ahead to the fourth quarter, on the revenue side, we believe that with the digestion of old product inventories of the two core products, the pressure on the company's revenue growth will decrease sequentially, and future new product launches are expected to clarify the channel profit chain and contribute to growth. On the profit side, the company actively adjusts the cost investment model, sorts out and integrates multiple brands to focus on resources, and the efficiency of cost investment is expected to gradually improve. As a leading health product brand, the company has deep barriers to offline pharmacy channels, and the online e-commerce operation capacity and cost investment efficiency continue to improve. We believe that after replacing old and new products, the company will be lightweight and return to healthy growth on the revenue side in 2025; and with the advancement of strategies such as focusing on key categories, differentiated online and offline multiple pallets, and cost investment model optimization, the profit side is also expected to perform well.

Investment advice: Considering the intensification of short-term price competition in the industry and the company's inventory of old products is still being digested, we lowered our profit forecast and expect to achieve net profit of 0.81/1.21/1.4 billion yuan in 2024-2026 (the previous forecast was 1.2/1.46/1.63 billion yuan), -53.6%/+48.9%/+15.7% year-on-year. The current stock price corresponds to PE 28/19/16 times, maintaining the “increase in holdings” rating.

Risk warning: Consumption recovery falls short of expectations, industry competition intensifies, and the cultivation of large single products falls short of expectations.