Beauty Farm Medical and Health reported 1H24 revenue of Rmb1.14bn (+9.7% YoY) and net profit of Rmb115m (+3.2% YoY). Its adjusted net profit reached Rmb132m (+0.5% YoY), in line with our expectation. Its blended gross margin increased 0.84ppts YoY to 47.0% in 1H24. Its selling expense-to-revenue ratio increased 0.58ppts YoY to 16.7% in 1H24.
Considering the consolidation of Naturade, we lower our adjusted EPS forecasts from Rmb1.38 to Rmb1.10 in 24E, from Rmb1.70 to Rmb1.34 in 25E, and forecast Rmb1.55 in 26E. Given its leading position in the market, we raise our target price from HK$17.95 to HK$19.84. With 23% upside, we maintain our BUY rating.
Beauty and wellness services remain stable. In terms of revenue breakdown by business type, revenue from beauty and wellness services reached Rmb622m (+13.6% YoY) in 1H24, with revenue from direct stores reaching Rmb564m (+11.2% YoY) and revenue from franchised and others reaching Rmb58m (+43.8% YoY), together accounting for 54.7% of its total revenue. In addition, revenue from aesthetic medical services remain flat at Rmb441m (+0.3% YoY), representing 38.8% of its total revenue. Meanwhile, revenue of subhealth medical services grew rapidly with 50.0% YoY growth to Rmb74m in 1H24.
Steady growth of client visits and active members of direct stores. In 1H24, the number of client visits of direct stores increased 11.6% YoY to 684,659, which served 81,531 active members (+10.3% YoY). In addition, the average spending per active member of direct stores slightly declined 2.1% YoY to Rmb12,608 in 1H24. In terms of the ASP by business segment, the ASP of beauty and wellness services remained relatively stable at Rmb6,771 (1.2% YoY) while that of aesthetic medical services declined 10.6% YoY to Rmb22,993 and subhealth medical services grew 23.0% YoY to Rmb15,180.
Continuous store expansions with the acquisition of Naturade. By the end-June 2024, the company's total number of stores reached 409 (vs 395 in 1H23), with the number of stores of beauty and wellness services, aesthetic medical services and subhealth medical services, reaching 376 (169 direct stores and 207 franchised stores), 24 and 9, respectively. In March 2024, the company announced the acquisition of 70% stake purchasing of Naturade, with a total consideration of Rmb350m. With major business network in Guangzhou and Shenzhen, Naturade is the second-largest brand of traditional beauty services in China in terms of the revenue. In addition, the company recently announced to absorb the remaining 75 Naturade stores under the franchise model, adding a total of 150 stores to the company's business network. Going forward, the company plans to further explore potential M&A opportunities to expand business operations.
Maintain BUY. Considering the consolidation of Naturade, we lower our adjusted EPS forecasts from Rmb1.38 to Rmb1.10 in 24E, from Rmb1.70 to Rmb1.34 in 25E, and forecast Rmb1.55 in 26E. Given its leading position in the market, we raise our target price from HK$17.95 to HK$19.84. With 23% upside, we maintain our BUY rating.
Risks. Slower-than-expected consumption recovery, rising competition from other beauty and health management services providers, lower-than-expected consolidation of acquired stores.
