Description of the event

With 2024Q3, the company achieved operating income of 1.21 billion yuan, a year-on-year increase of 14%; net profit attributable to mother was -0.07 billion yuan, a year-on-year decrease of 153%; net profit not attributable to mother was -0.08 billion yuan, a year-on-year decrease of 158%.

Incident comments

Revenue side: The main brand is growing steadily, and Yuejiang is also showing an increase in contributions. On a quarterly basis, Q1, Q2, and Q3 revenue growth rates were 27.1%, 13.5%, and 14.0%, respectively, and maintained steady double-digit growth in the third quarter. Looking at the breakdown, Winona and other major brands are expected to achieve revenue of 1.12 billion yuan in the third quarter, up 5.3% year on year (Q1-Q3 cumulatively about 6.0%), decelerating slightly from month to month, and remaining relatively steady overall; Yuejiang also contributed 0.12 billion yuan in revenue growth, contributing about 11.0% (Q1-Q3 cumulative total of 11.1%).

Profit side: Profit is under phased pressure due to the expansion of sales expenses. The company's gross margin for the third quarter was 76.4%, a year-on-year narrowing by 2.4 percentage points, mainly due to changes in promotion policies and product sales structure, and the overall gross margin of Yuejiang and Yuejiang was low; the sales expense ratio was 60.4%, a significant increase. The sales expenses amount was 0.733 billion yuan, an increase of 0.225 billion yuan over the previous year, mainly due to the company actively increasing promotion investment such as planting and marketing investment in the Douyin channel during the reporting period; At 13.5%, the increase was significant. The amount of management expenses was 0.164 billion yuan, an increase of 72.48 million yuan over the previous year. This was mainly due to the company's share incentive expenses for employee stock ownership plans during the reporting period. Furthermore, management expenses basically matched the increase in the company's sales scale.

Investment advice: We believe that due to the increase in investment in the Douyin channel, the expansion of brand promotion expenses, and the calculation of equity incentive fees, etc., the company's profit side is under phased pressure. However, the company's Winona's core single product, special cream and sunscreen, has a stable position in the market. At the same time, freeze-dried masks have a high base formed in the past, which is expected to be mitigated to a certain extent after this year's product upgrade. Looking ahead to next year, the contribution of the main brand's sub-new products is expected to continue to be prominent, and sub-brands such as Winona Baby are also expected to build a group growth curve after starting in size. The company's 2024-2026 EPS is expected to be 1.54, 1.89, and 2.36 yuan respectively, maintaining a “buy” rating.