Due to fluctuations in real estate financial data for the same period last year, the core business remained stable. The company's revenue for the first three quarters was 2.803 billion yuan, a year-on-year decrease of 17.45%; net profit to mother was 0.171 billion yuan, a year-on-year decrease of 28.09%. The third quarter achieved operating income of 0.877 billion yuan, a year-on-year decrease of 4.82%; net profit to mother was 43.9138 million yuan, a year-on-year decrease of 7.76%; net profit after deducting non-attributable net profit of 39.2759 million yuan, a year-on-year decrease of 12.15%. Since the company completed the handover of the second batch of 2 real estate companies on October 31 last year, there was still some real estate business in the third quarter of last year, which had a certain disruptive impact on the company's third quarter results.

By business, the cosmetics business achieved revenue of 0.522 billion/yoy -4.9% in the third quarter, and a gross profit margin of 64.48% /yoy+4.4pct. By improving product structure and reducing manufacturing costs, etc., gross margin increases. Among them, the Q3 Yilian brand achieved revenue of 0.211 billion/yoy -4.1%, and sales of 2.0 spray/moisturizer increased 21%/54% respectively in the first three quarters. Q3 Dr. Earl achieved revenue of 0.264 billion/yoy -10.5%. Since this year, sales of flash lotion and probiotic masks have increased 12%/5% year over year, respectively. Since 618, Dr. Earl has made internal adjustments in product prices and expert cooperation mechanisms. It is expected that brand performance will improve after the adjustments are completed. Q3 The pharmaceutical business achieved revenue of 0.13 billion/yoy +19.3% and a gross profit margin of 47.43% /yoy-1.68pct. Due to the low base for the same period last year, the company made sales channel adjustments, which drove sales to stop falling and stabilized. The Q3 raw materials business achieved revenue of 0.077 billion/yoy -6.9%, and a gross profit margin of 39.66% /yoy+2.68pct, mainly due to the increase in sales share of high-margin pharmaceutical-grade hyaluronic acid.

Financial data fluctuated due to the impact of real estate business in the same period last year. 2024Q3's gross margin/net margin was 51.81%/6.08%, a year-on-year decline of 3.10/1.21pct. Sales/management/R&D/finance expenses were 36.71%/4.59%/4.35%/-0.70%, -3.34/-0.65/+0.48/+1.76pct, respectively. In terms of operating capacity, the number of inventory turnover days in the first three quarters of 2024 was 125 days, down 3679 days; accounts receivable turnover was 43 days, up 9 days year on year. In terms of cash flow, 2024Q2 net operating cash flow was -0.075 billion/ -185.09%. The above financial data were mainly affected by real estate business in the same period last year.

Risk warning: macro-environmental risks, sales falling short of expectations, and increased industry competition.

Investment advice: Under fierce competition in the external industry and its own internal adjustments, the company's revenue side was under pressure in the third quarter, but through product structure optimization and effective control of cost investment, it is expected that the profit side of the core business will still perform well. In the future, with the completion of the company's internal adjustments and active promotion of measures to reduce costs and increase efficiency, the overall performance is expected to continue to improve. Considering that the company's cosmetics brand is in a period of internal adjustment, and the pharmaceutical and raw materials business is being fiercely affected by industry policies and competition, we lowered net profit from 2024-2026 to 2.72/3.26/3.68 (the original value was 0.324/0.374/0.426 billion yuan), corresponding to PE 27/23/20 times, maintaining the “superior to the market” rating.