Incident: Shanghai Jiahua revealed its results for the third quarter of 2024. With 24Q1-3, the company achieved revenue of 4.477 billion yuan, -12.07%; net profit to mother 0.163 billion yuan, or -58.72% year-on-year; net profit after deducting non-return to mother 0.12 billion yuan, or -59.74% year-on-year. Looking at Q3 alone, the company achieved revenue of 1.156 billion yuan, -20.93%; net profit to mother -0.075 billion yuan, or -180.85% year-on-year; net profit without return to mother -0.115 billion yuan, or -421.81% YoY.

We are in a painful period of strategic transformation, and profitability is under pressure in the short term. 1) Gross margin side, 24Q1-3/Q3, company gross margin was 59.41%/54.49%, y-0.11/-3.24pct; 2) Expense ratio, 24Q1-3/Q3, the company's sales expense ratio was 45.12%/50.03%, +1.69/+6.83pct; management expense ratio was 8.55%/11.40%, -0.62/+0.17pct; R&D expense ratio was 2.33%/3.07%, y-0.08/+0.57pct; 3) Net margin side, In 24Q1-3/Q3, the company's net interest rate to mother was 3.63%/-6.51%, -4.11/-12.89pct; net interest rate without return to mother was 2.68%/-9.96%, -3.17/ -12.41pct year on year.

Continue to push forward organizational structure adjustments, and complete the iteration of core talents in Q3. Over the past 24 years, the company has continued to deepen business division reform, further adjust the domestic business organization structure, solidly promote flat management, and further improve the efficiency of operation and decision-making. The company's overall organizational structure is divided into the front, middle, and back office. The front desk includes the beauty division (including Yuze, Baicaoji, Diancui, and Shuangmei brands), the personal care division (including Liushen, Meijiajing brands), the innovation division (including Qichu, Jia'an, Goff and other brands), overseas divisions and offline sales departments; among them, the offline sales department is integrated from all offline departments to become Shanghai Jiahua's independent front desk business. The middle office includes marketing department, R&D department and supply chain department, and the back office includes the finance department, up to 24; At the end of Q3, all five general managers of the front desk division took office, including The middle and back office, which includes brand, marketing, R&D, and finance, has also completed the rotation of domestic chemical cadres and the introduction of new recruits.

Focus on and strengthen brand building, accurately expose multiple brands, and continue to compete. 24Q3 continues to deepen reforms, further focusing on core brands with resource investment and marketing to help brands break the circle; among them, ① Liushen: focuses on cultivating youthful products such as refreshing eggs to strengthen the brand mentality of young people. The 3rd Liushin “Refreshing Festival” campaign launched in July had an effective exposure of over 0.4 billion, an effective interaction volume of 5.75 million, a 10% year-on-year increase in the number of new fans, and a high marketing conversion rate; ② Yuzawa: Further consolidating the cornerstone of medical research on sensitive skin care, and vigorously strengthening investment in and building national priorities in professional skin research The advantages of medical research cooperation between the top three hospitals, focusing on cultivating medical research co-creation products such as dry cream, oil sensitive cream, and body lotion; ③ Baicaoji: Q3 joined hands with the new generation of stars to continue to build brand rejuvenation, and appeared on Tmall Super Brand Day. The debut performance GMV broke 20 million, the total media exposure exceeded 0.25 billion, and the Zi Yu Ling to Fu Wen Zhen series was launched in Q3, becoming the brand's TOP3 most popular product; ④ Meijiajing: Continuing to operate its own IP “Old Snow Baby” “Aunt” Wang Lin and Fan Wei I was a guest on the brand Douyin live broadcast room and joined the Huitai live broadcast room in September. At the end of Q3, the number of fans increased by nearly 0.2 million compared to the beginning of the year.

The results of the online channel strategy reform began to show during the “Double 11" period, and offline adjustments progressed steadily, and we look forward to a subsequent inflection point in growth. Since the launch of “Double 11” in '24, the company has fully leveraged the advantages of multi-platform resources, further enhanced brand exposure, and joined hands with many leading beauty experts to achieve a sharp rise in brand volume and sales. Among them, the Yuze brand achieved rapid growth on all platforms until the first stage of pre-sale. Shuangmei's Yu Rong Shuang Li Jiaqi first sold out 1 minute. The results of the company's online channel reform are beginning to show; in the short term, the company's online channel reform results are beginning to show; in the short term, the company's online channel reform is beginning to show; in the short term, Q4 performance growth may still be slightly pressured by business adjustments. Looking forward to the growth inflection point brought about by the steady progress of the company's strategic adjustments .

Investment advice: As a leading enterprise in the cosmetics industry, the company is optimistic about endogenous growth brought about by the gradual clarification of the company's main products, improved sales channel efficiency, and organizational structure adjustment and optimization. We expect net profit to mother of 0.272/0.393/0.493 billion yuan in 24-26, a year-on-year growth rate of -45.5%/44.3%/25.5%. The corresponding PE is 41X, 28X, and 23X respectively, maintaining the “recommended” rating.

Risk warning: Competition in the industry intensifies; new product launches fall short of expectations; strategic adjustments fall short of expectations.