Key points of investment

Revenue decelerated in the 24Q3 single quarter, putting pressure on the deduction of non-profits.

24Q1-Q3: Revenue 2.38 billion yuan (+9%, same ratio in parentheses, same below); net profit due to mother 1.59 billion yuan (+12%); net profit not attributable to mother 1.53 billion yuan (+10%). 24Q3: Revenue of 0.72 billion yuan (+1%); net profit due to mother 0.465 billion yuan (+2%); net profit of non-return to mother 0.442 billion yuan (-4%). Among them, 24Q3 non-recurring income was 22.95 million yuan (-6.82 million yuan in the same period last year), mainly due to an increase in fair value income and entrustment investment income generated by non-financial enterprises holding financial assets and financial liabilities.

We expect the slowdown in revenue growth in Q3 mainly due to revenue pressure from old hyaluronic acid products, etc., and a slowdown in the growth rate of recycled products.

Profitability: Both gross margin and period expense ratio have declined, and net profit margins have been rising steadily.

24Q1-Q3: gross profit margin of 94.8% (-0.5pp), net profit margin of 66.7% (+1.5pp), sales/management/R&D expenses ratio of 8.7% (-1.1pp)/3.9% (-1.3pp)/7.9% (+0.5pp), 24Q3: gross profit margin 94.6% (-0.5pp), net profit margin 64.5% (+0.6pp), sales/management/R&D expense ratios were 9.0% (+0.1pp)/3.3% (-1.2pp)/8.6% (+0.8pp), respectively.

Among them, we expect that the decline in gross margin is mainly due to the impact of the consumer environment. The growth rate of high-margin recycled products, panda needles, and Bonida's revenue may slow down, and the water-light acupuncture products positioned by the public are still expected to maintain a high growth rate. The decline in the management fee ratio is mainly due to the impact of Hong Kong stock listing expenses last year, and the base is relatively high.

Outlook: In the short term, focus on the pace of launch of new products such as Bonide (Chin Indications) and Botox. Higher growth comes from the continuous expansion of product matrix boundaries.

The company's star Hi-Body series and regenerative products may be affected by the consumer environment in the short term, but they are still scarce products in the medical and aesthetic market. With the support of the brand, it is expected to maintain steady overall growth.

In terms of new product catalysis, the second-generation Bonita (Chin Indication) was approved in October of this year, and the registration application for botulinum toxin type A Korea Hutox, which was exclusively represented in June '24, was also accepted by the NMPA. The two core new products are expected to contribute to increased performance in '25. In addition, progress for minoxidil liniment (registration reporting stage) and lidocainca cream (target year to enter registration) is also at the forefront.

In the medium to long term, the medical and aesthetic market's low penetration and high growth logic remains unchanged, and new tracks and new products can be expected to expand. As a leading domestic injectable medical and aesthetic company, the company currently maintains a leading position in the field of hyaluronic acid injections and regenerative product injections, and has laid out a blue ocean racetrack for botulins, weight loss products, collagen, etc., to lay the foundation for medium- to long-term growth. In '23, the company cooperated with Peptide Biotech to introduce simeglutide and invested 4.89% of its shares; signed a distribution agreement with JEISYS MEDICAL, a leading medical and aesthetic instrument company in Korea, to lay out two high-potential products: high-intensity focused ultrasound instruments (similar products are ultrasound knives) and single-stage radiofrequency instruments (similar products are Thermage), which we expect to be launched in 25-27.

Profit forecast and valuation: Due to phased pressure on the consumption environment, we lowered our profit forecast. We expect net profit to be 2.051/2.351/2.693 billion yuan for 24-26, an increase of 10.4%/14.6%/14.5%. The current market value corresponds to PE only 31/27/24 times. Considering that many of the company's potential new products are expected to be approved starting next year, and looking forward to an inflection point, we maintain a “buy” rating.

Risk warning: Consumption recovery falls short of expectations; market competition intensifies; new product launch progress falls short of expectations, etc.