The decline in epidemic prevention supplies affected the income performance in the third quarter, increased profits from asset disposal and ample cash on the books.

In the third quarter of 2023, the company's revenue decreased by 29.8% to 1.74 billion yuan compared with the same period last year, and the return net profit increased by 31% to 1.47 billion yuan compared with the same period last year, mainly because the asset disposal income contributed by the urban renewal project was close to 1.6 billion yuan. In fact, the non-net profit decreased by 78% to 71 million yuan. In terms of business, medical business and consumer goods changed by-48% and + 4% respectively over the same period last year, of which medical business was affected by a 90% drop in epidemic prevention products. Gross profit margin rose slightly to 47.0% in the third quarter, mainly due to changes in business structure. During the third quarter, the expense rate increased by 10.8% to 38.8%, which is related to the decrease in total income, the increase in the proportion of consumer goods, and the increase in brand marketing activities in the cotton era. The deduction of non-net interest rate fell 9.1 percentage points to 4.1% in the third quarter compared with the same period last year. As of 9: 30, the net cash on the company's account is about 5.5 billion yuan, which is abundant.

The medical sector is a drag on the shrinkage of epidemic prevention products, and the influence of consumer goods is enhanced. 1) Medical sector: the income of Q3 decreased by 48% to 830 million yuan, of which conventional products and epidemic prevention products changed by + 2% and-90% respectively compared with the same period last year. The low growth rate of conventional products is also due to the high base of epidemic prevention. The company's medical business attaches importance to R & D investment, with a number of R & D patents and medical registration certificates. The three companies acquired last year laid the foundation for the company to improve access documents and lay the foundation for the layout of medical low-value consumables. At the same time, actively participate in various industry meetings in the third quarter to enhance brand professional awareness. 2) Consumer goods sector: Q3 income increased by 4% to 900 million yuan, and the slowdown was mainly affected by the general environment. The company continues to give full play to its advantages to create core explosive products such as dry and wet cotton towels to promote the number of members. In terms of brand building, the overseas Division was established in August and the annual membership Festival actively held a series of marketing activities to convey the sustainable value of "cotton" to users. On October 14, we held an offline meeting with spokesperson Guo Jingjing.

Risk tips: epidemic repeated downward consumer demand; international political and economic risks; fierce market competition investment suggestions: short-term operating pressure, medium-and long-term optimistic about the synergy benefits of medical mergers and acquisitions, and the improvement of profit margins of consumer goods. In terms of the medical sector, the demand for short-term disease prevention and prevention products has dragged down the performance with the steady contraction of the epidemic, and has gradually returned to normal. In the medium and long term, the company has plenty of cash in its account, epitaxial mergers and acquisitions are expected to achieve coordinated and complementary product channels, and the improvement of medical consumables products and multi-channels show sufficient growth momentum. The influence of consumer goods business is gradually increasing, and it is expected to promote profitability through measures such as focusing on superior categories, optimizing channels, reducing costs and increasing efficiency in the future. Due to the lower-than-expected revenue and earnings in the third quarter, and taking into account the current poor macroeconomic climate, the profit forecast is revised downgrade. the estimated net profit is estimated to be 2.36 billion yuan, 11.4 billion yuan, 14.6 billion yuan, 14.6 billion yuan, respectively, and the year-on-year change is + 43%, 52%, 16%, and the target price is reduced to 45-48 yuan (originally 58-62 yuan), corresponding to 2024 PE 17-18x. Maintain a "buy" rating.