Revenue for the first three quarters fell 3.8% year on year, and net profit to mother was 31.92 million yuan. Qingsong Co., Ltd. released its 2024 three-quarter report. The company achieved operating income of 1.39 billion yuan in the first three quarters of 2024, a year-on-year decrease of 3.8%, and net profit of 31.92 million yuan to mother. The year-on-year loss was reversed. After deducting non-net profit of 30.6 million yuan, the EPS was 0.06 yuan.

The company's revenue declined and profits reversed losses in the first three quarters, mainly due to an increase in gross margin and a decrease in expense ratios. The net interest rate to mother was 2.3%. Looking at a single quarter, 2024Q3 achieved revenue of 0.53 billion yuan, a year-on-year increase of 2.2%. Net profit to mother was 25.06 million yuan, which reversed the year-on-year loss, and the net interest rate to mother was 4.7%. In addition, the company's revenue for 2024Q1/Q2 was -4.3%/-9.3%, and net profit to mother was -6 million yuan and 12.85 million yuan, respectively. Q3 revenue growth was positive, and net interest rate to mother also increased month-on-month in Q2.

Gross margin recovered significantly, expense ratios declined, inventory increased, turnover accelerated, and net operating cash flow increased gross profit margin: gross margin increased 7.2 PCT to 16.6% year-on-year in the first three quarters. On a quarterly basis, gross margin for a single quarter from 24Q1 to Q3 was +11.3/+4.6/+6.4PCT to 13.8%/16.1%/18.9%, respectively. The gross margin showed a fixed upward trend year over year and month over month.

Expense ratio: The cost ratio decreased by 0.8 PCT to 13.8% year on year during the first three quarters. Among them, sales/management/R&D/finance expenses were 2.4%/7.7%/3.3%/0.4%, respectively, -0.1/-0.2/-0.4 PCT, respectively.

Expense rates for a single quarter from 23Q1 to Q3 were -1.9PCT/flat/-0.8PCT, respectively.

Other financial indicators: 1) Inventory at the end of September '24 increased 15.7% to 0.31 billion yuan compared to the beginning of the year, up 3.0% year on year; the number of inventory turnover days was 67 days, a decrease of 8 days year on year. 2) Accounts receivable increased by 8.9% to 0.46 billion yuan at the end of September '24 compared to the beginning of the year, an increase of 5.3% over the previous year; the number of accounts receivable turnover days was 86 days, a decrease of 4 days over the previous year. 3) Net operating cash flow was 92.91 million yuan in the first three quarters, an increase of 54.7% year on year, mainly due to the year-on-year decrease in purchase payments.

The Q3 performance trend improved, maintaining profit forecasts and the Q3 revenue growth rate of “neutral” rating companies. The profit side reversed losses year over year, and the performance trend was positive in each quarter. The company continues to strengthen raw material procurement management, control procurement costs, and improve production and management efficiency, thereby increasing gross profit margin and gradually improving performance. As a leading cosmetics manufacturer, we expect the company to continue to improve its R&D capabilities, enrich the order structure, speed up digital construction, and further repair its performance. We have temporarily maintained the company's profit forecast for 2024 to 2025, and added a profit forecast for 2026. The EPS for 2024 to 2026 was 0.11/0.29/0.34 yuan, respectively, and PE was 46/17/15 times, respectively, maintaining a “neutral” rating.

Risk warning: Consumption is weak, cosmetics manufacturing business orders fall short of expectations; raw material costs have risen sharply.