The company's 1-3Q24 revenue, net profit to mother, 4.33/1.15/1.07 billion yuan (+26/47/ 52% yoy), 3Q24 revenue, net profit to mother, 1.58/0.41/0.37 billion yuan (+25/64/ 75% yoy), is in line with the performance forecast (1-3Q24 net profit to mother is estimated at 1.1-1.18 billion yuan, net profit after deducting non-net profit of 1.01-1.09 billion yuan). We believe that the company's comprehensive reforms and four restructurings since 2022 will continue to drive sales growth and profit margin improvement. We are optimistic that the company will nourish the national treasure, deepen and expand its products, continue to enrich its product range, and maintain the “gain” rating.

Strong core product performance, balance sheet and cash flow statement health 1) Benefiting from channel expansion and brand marketing, we expect the revenue of 1-3Q24 Ejiao block, Ejiao paste, peach blossom powder to increase by about 10%, 50%, 15%, and 150% year-on-year, maintaining the strong trend in the first half of the year; 2) 1-3Q24 gross profit ratio of 74.1% (+4 pct yoy), net interest rate 26.6% (+4 pct yoy), mainly due to increased capacity utilization and marginal decline in raw material costs; 3) Excellent financial performance, 3Q24 company accounts receivable 0.34 billion yuan (+2% yoy), relatively stable, inventory 0.83 billion yuan (-25% yoy), remained low in recent years. 1-3Q24 net cash flow was 1.44 billion yuan (+9% yoy), higher than net profit.

Brand digitalization and clinical value discovery go hand in hand

1) The company continues to promote brand digitalization, and continues to build brand barriers through new media such as Tencent, Mango, Xiaohongshu, and B station; 2) Continuously exploiting the clinical value of Ejiao paste, the research results of compound Ejiao paste to treat cancer-related fatigue once again won Best of SIO (Special Merit Award) at 10M24 at the 21st American Society of Integrative Oncology, and the clinical efficacy of Ejiao paste continues to be recognized by academia.

Firmly advance the “Four Reshapings” and “1238” development strategies, and improve both quality and return 1) In 2022, Cheng Jie, the new president, joined the company to promote organizational restructuring internally and business reshaping externally. The company solidly promoted the “Four Reshapings”, implemented the “1238” development strategy, focused on Ejiao's main business, developed “Ejiao +” and “+ Ejiao” to promote the company's medium- to long-term healthy development; 2) 1M24 announced a draft equity incentive plan to grant 1.512 million shares (accounting for 0.2348% of the total share capital) to 185 key players through repurchase. The assessment indicators include profit growth rate, ROE, operating profit margin, etc., which helps bind employees' interests and promote long-term development; 3) A high percentage of cash dividends returned to the company's shareholders First mid-year dividend 0.74 billion yuan (accounting for 99.8% of 1H24's net profit) has completed equity distribution at 9M24.

Maintain an “increase in holdings” rating

We maintain our profit forecast. We expect net profit of 1.44/1.79/2.24 billion yuan to the mother in 2024-26, giving PE a valuation of 30x in 2025 (comparable company average value of 23x, with a premium based on continuous improvement in the company's revenue and net interest rate based on continuous promotion of strategies such as “four reshaping”), and a target price of 83.57 yuan (previous value of 78.19 yuan), maintaining the “gain” rating.

Risk warning: Health insurance payment pilot policy changes, consumption of high-end drugs falls short of expectations.