Haohai Biotech released its report for the third quarter of 2024. 2024Q1-Q3 achieved operating income of 2.075 billion yuan, up 4.69% year on year; net profit to mother 0.341 billion yuan, up 4.31% year on year; net profit without deduction of 0.321 billion yuan, up 5.53% year on year. 2024Q3 achieved operating income of 0.67 billion yuan, a year-on-year increase of 0.22%; net profit to mother of 0.106 billion yuan, a year-on-year decrease of 13.13%; net profit without deduction of 0.091 billion yuan, a year-on-year decrease of 22.02%.

Opinion: The slowdown in revenue side growth in Q3 was mainly due to price cuts in ophthalmology collection. Fluctuations in gross margin caused profit side growth rate to fall short of revenue side growth. The hyaluronic acid sector has obvious advantages, and the high-end hyaluronic acid “Haimei Moon White” is expected to become a new hit. Continue to polish the medical and aesthetic marketing team to support the long-term development of the medical and aesthetic sector. Ongoing research projects are progressing in an orderly manner, and the product line continues to improve.

Q3 The slowdown in revenue side growth was mainly due to price cuts in ophthalmology collection. Fluctuations in gross margin caused profit side growth rate to fall short of revenue side growth. The steady operation of the 2024Q3 company, and the slowdown in revenue side growth. We speculate that this is due to the reduction in the price of artificial crystal collection. The gross margin of 2024Q3 was 70.21% (-2.63pct year over year). Due to large fluctuations in gross margin, the profit side growth rate was not as high as that of the revenue side. The 2024Q3 sales expense ratio was 28.23% (YoY -2.38pct), the management expense ratio was 17.41% (YoY +0.26pct), and the R&D expense ratio was 9.36% (YoY +1.47pct). The decrease in sales expense ratio was mainly due to the reduction in marketing and promotion expenses after implementation of collection.

Refine the medical and aesthetic marketing team, and the high-end product “Haimei Moon White” can be expected to be released. The company continues to refine its medical and aesthetic marketing team. 2024H1 has invested 200 people in RF and laser equipment, and the hyaluronic acid product team is 150-200 people, and the sales team will continue to expand in the future. The 2024H1 hyaluronic acid business revenue was 0.417 billion yuan (+51.30% compared to the same period). High-end products such as third-generation hyaluronic acid “Sea Charm” and “Sea Meiyun” achieved rapid growth, and first-generation hyaluronic acid products also achieved relatively rapid growth. In July 2024, the fourth-generation hyaluronic acid product “Haimei Moon White” was approved. It has characteristics such as better long-term safety, longer efficacy, and can stimulate local collagen growth. It will continue to support the medium- to long-term development of the hyaluronic acid business with a product portfolio that differentiates the function and price positioning of the previous three generation hyaluronic acid types.

Continue to increase R&D and innovation, and progress smoothly in the research pipeline. 2024Q1-Q3, the company invested 0.188 billion yuan in R&D (+22.04% year on year), and the share of R&D investment increased by 1.29pct. The company's R&D projects are progressing in an orderly manner. In the medical and aesthetic field, fourth-generation organic crosslinked hyaluronic acid has obtained registration certificates, painless crosslinked hyaluronic acid injections, and medical crosslinked chitin glycogel (water light) have all entered clinical trials; in the field of ophthalmology, hydrophobic modeled astigmatism correction aspherical intraocular lenses have entered the registration stage, hydrophilic continuous vision intraocular lenses, and second-generation aqueous permeable PRL products are progressing in clinical trials in an orderly manner; in the orthopedic field, linear crosslinked chitosan joint cavity injections have completed registration tests.

Profit forecasting and investment advice. We expect the company's revenue in 2024-2026 to be 2.914, 3.382, and 3.931 billion yuan, respectively, up 9.8%, 16.1%, and 16.2% year over year; net profit to mother will be 0.453, 0.582, and 0.709 billion yuan, respectively, up 8.8%, 28.6%, and 21.7% year over year; corresponding PE will be 34X, 26X, and 22X respectively, maintaining the “buy” rating.

Risk warning: sales and promotion of new products fall short of expectations; market competition increases risk; risk of industry policy changes