Brief performance review

On August 21, the company announced 1H24's revenue of 3.321 billion yuan, -8.51% year on year, net profit of 0.238 billion yuan, -20.93% year on year, after deducting non-net profit of 0.235 billion yuan and -10.36% year on year. The number of inventory turnover days decreased by 26 days year on year.

Looking at a single quarter, 2Q24 revenue was 1.415 billion yuan, -14.2% year-on-year, and net profit loss to mother was 18.2 million yuan/net profit loss of 58.2 million yuan after deducting non-net profit loss.

Management analysis

Active adjustments & organizational reforms disrupt performance in the short term. 2Q24 gross margin was -0.85PCT to 58.25% year over year, sales expenses ratio was +4.8PCT to 51.8% year over year, management expenses ratio was +1.6PCT to 9% year over year, and net profit margin to mother was -5.6PCT to -1.3% year over year, mainly due to the decline in revenue scale.

Continue to deepen business division reform, shift from channel-driven to brand-driven, and flat management to help improve operational and decision-making efficiency. The entire nursing division (including the Liushen and Meijiajing brands), the beauty division (including Yuzawa, Baicaoji, Diancui, and Double Sister brands), and established a new innovation division (including brands such as Qichu, Jiayuan, and Goff).

Strengthen brand building and echelon management, and focus resources on core brands. 1) First-tier brands: Striving to make Yuze and Liushen the leading brands in the segment. In the second half of the year, Yuze focuses on sensitive skin care and highlights the specialized competitive advantage created by medical research; 2) Second-tier brands (Meijiajing, Baicaoji): Positioning quality-price brands in large-scale racetracks. Baicaoji continues to shape traditional Chinese herbal brands, focusing on anti-aging and whitening effects. Meijiajing focuses on the popular circuit.

Build a differentiated channel matrix with the brand as the core. Online channels will focus on breaking through e-commerce interests, developing emerging e-commerce, stabilizing e-commerce platforms, and focusing on developing content-centered online operation capabilities; offline channels focus on improving efficiency.

Profit Forecasts, Valuations, and Ratings

In the second half of the year, the company will continue to deepen business division reform. The brand side will focus on end users and brand building, increase the market share of core brands, and the channel side will focus on online, breaking through interested e-commerce, and expect the reform to show results and gradually improve performance.

Considering that it will take some time to resolve historical burdens, disrupt performance in the short term, and lower profit forecasts, the net profit forecast is estimated to be 0.501/0.571/0.67 billion yuan in 24-26, +0.1%/+14%/+17% year-on-year, corresponding to PE 22/20/17 times in 24-26, respectively, maintaining a “buy” rating.

Risk warning

New product incubation/channel expansion/marketing launch fell short of expectations.