The company disclosed its 2014 quarterly results: 2024Q1-3 revenue of 2.803 billion yuan (-17.45%, representing year-on-year growth rate, same below), net profit of 0.171 billion yuan (-28.09%) to mother, net profit of 0.151 billion yuan (+40.09%) after deducting non-return to mother, which was mainly affected by the divestment of the real estate business. 2024Q3 revenue was 0.877 billion yuan (-4.82%), net profit due to mother 0.044 billion yuan (-7.76%), net profit not attributable to mother 0.039 billion yuan (-12.15%).

Q3 The growth rate of cosmetics brands fluctuated, and new product upgrades performed well. 24Q1-3 cosmetics revenue was 1.708 billion yuan, +3.25% year over year, of which ① Yilian brand 24Q1-3 revenue was 0.658 billion yuan, up 7.57% year on year (Q1/Q2/Q3 +15%/+1%/-4% year on year respectively), and there were fluctuations in Q3.

The iteration of new 24Q1-3 products is now relatively good. Among them, sales of 2.0 spray increased by 21%; the moisturizer line used facial cream to drive sales of the same series of moisturizer, and sales of moisturizer increased by 54%; with new neck mask products online, soft film sales also increased 22%. ② Dr. Earl's 24Q1-3 revenue was 0.909 billion yuan, +1.80% year-on-year (Q1/Q2/Q3 +21%/-10% year-on-year, respectively). The growth rate was adjusted due to brand upgrades and adjustments. In terms of new products, the flash lotion upgrade boosted 24Q1-3 sales by 12%, while sales of probiotic mask 24Q1-3 increased by 5%. At the same time, the company continues to expand the collagen and care circuit. The Cosmi brand broadcast channel mainly promotes gum sticks and collagen patches, that is, the Mu brand Douyin platform has launched a new oil control and fluffy shampoo, and the expansion of new categories is expected to contribute to increased performance.

Pharmaceutical sales stopped falling and stabilized, and the raw materials business adjusted the product sales structure. 24Q1-3 pharmaceutical/raw materials revenue was 0.37/0.25 billion yuan, respectively, -7.4%/-2.0% year-on-year. In 24Q3, pharmaceutical/raw materials revenue was 0.13/0.08 billion yuan, respectively, +18.7%/-7.5% year-on-year. ① Pharmaceuticals: Q3 stopped falling and stabilized, production approval for single-dose levofloxacin eye drops (0.6ml) was obtained, and the new business development completed the construction and operation of a pharmaceutical and food homologous product supply chain service platform to achieve the listing of 9 pharmaceutical-food homologous functional foods; ② Raw materials: Hyaluronic acid disaccharide successfully launched, and completed the development and sale of products customized by high-end customers such as hydroactive 5D sodium hyaluronate and Baiyanlu.

Expense control has been strengthened, and the cost rate for the period has been optimized. ① Gross profit margin: 2024Q1-3 +4.77pct to 51.85%, gross margin increased after real estate divestment, and 2024Q3 -3.10pct to 51.81% yoy; ② Period expense ratio: 2024Q1-3 +3.07pct yoy; 2024Q3 -1.76pct yoy, mainly due to Q3 sales expense ratio -3.34pct yoy; ③ Net profit margin: Combined with changes in gross margin and expense ratio, 24Q1-3 -0.9pct to 6.11% yoy, 24Q3 YoY- 0.16pct to 5.01%. ④ Cash flow: 24Q1-3 net operating cash flow of 0.061 billion yuan, yoy -81.28%, mainly affected by the divestment of the real estate business during the same period.

Profit prediction and investment rating: The company focuses on the health industry, while gradually improving efficiency through organizational structure adjustments and strategic focus, and the development trend is improving. Considering that cosmetics brands are still in the upgrade and adjustment stage, short-term performance or pressure, we lowered our 2024-26 net profit forecast of 0.34/0.41/0.5 billion yuan to 0.29/0.39/0.48 billion yuan. The corresponding PE is 26/19/16X, respectively, maintaining a “buy” rating.

Risk warning: Market competition intensifies, product promotion falls short of expectations, etc.