Incident: Yuyue Healthcare announced results for the third quarter of 2024. 24Q1-3 achieved revenue of 6.03 billion yuan (-9.5% YoY), net profit attributable to mother of 1.53 billion yuan (YoY -30.1%), and net profit after deducting non-return to mother of 1.27 billion yuan (-23.7% YoY). On a quarterly basis, revenue for 24Q1/Q2/Q3 was 2.23/2.08/1.72 billion yuan (-17.4%/-8.8%/+2.2%); net profit to mother was 0.66/0.46/0.41 billion yuan (-7.6%/-41.0%/-41.0%), respectively; net profit after deducting non-attributable net income was 0.55/0.41/0.31 billion yuan (-21.7%/-25.1%/-25.4%), respectively.

Gross profit margins have declined, and cost investment has increased. 24Q1-3's gross margin was 50.1% (-1.4 pct year over year), and the gross margin for Q1/Q2/Q3 was 49.9%/50.2%/50.3% (-2.8/-0.3/-0.9 pct), respectively. The 24Q1-3 sales/management/ financial/ R&D expense rates were 15.4%/5.1%/-2.2%/6.7%, respectively, +2.6/+0.8/-0.9/+0.8 pct. Sales expense rates for Q1/Q2/Q3 were 12.3%/16.4%/18.4%, +1.2/+2.6/+4.0 pct; management expenses rates were 4.4%/5.3%/6.0%, +0.4/+1.3/+0.6 pct, respectively; financial expenses rates were -2.3%/-2.4%/-1.7%, 2.2/-0.8/+0.9 pct; R&D expense rates were 5.6%/7.0%/7.9%, year-on-year, +0.6/+0.9/+0.5 pct, respectively .

Profit forecast and rating: Referring to the results of the first three quarters, we adjusted the profit forecast. The company's total revenue for 2024-2026 is 7.92/9.3/10.7 billion yuan (previous value was 8.59/9.93/11.28 billion yuan), and net profit to mother is 2.01/2.31/2.78 billion yuan (previous value was 2.03/2.35/2.73 billion yuan), respectively. The company is a leading platform-based household equipment company with strong brand power. After 2020, through innovation and reshaping, it focused on the three high-growth tracks, had great potential for growth, and maintained the company's “buy” rating.

Risk warning: Product sales fall short of expectations; overseas expansion falls short of expectations; risk of deteriorating competitive landscape.