Find steady growth points in the face of adversity. The company achieved operating income of 2.803 billion yuan in the first three quarters of 2024, -17.45%; by business, the company's Cosmetics/Pharmaceutical/Raw Materials and Additives business revenue in the first three quarters of 2024 was 1.708/0.37/0.249 billion yuan, +3.25%/-7.42%/-1.96%, respectively. Among them, in the cosmetics business, Yilian/Dr. Aier achieved revenue of 0.658/0.909 billion yuan, respectively. Yilian's innovative marketing strategies (such as cultural and creative IP co-branding and launch of 2.0 spray) successfully promoted sales. Dr. Aier adhered to the high-end route and actively carried out technical iteration and new product planning; despite overall sales pressure, the third quarter results rebounded steadily; the development of newly launched hyaluronic acid-related products and high-end customized products was used as raw materials and additives The foundation was laid for subsequent growth in the pharmaceutical business.

Overall gross margin increased, but profitability declined slightly. The company effectively increased its overall gross profit margin through product innovation, brand effect and customer structure optimization. In the first three quarters of 2024, the company's gross profit margin was 51.85%, +4.77% year over year, and the gross margin of the Cosmetics/Pharmaceutical/Raw Materials and Additives business was 62.32%/50.48%/39.39% pcts, up +0.24/-3.94/ +3.38% pcts, respectively; however, due to increased marketing investment to enhance brand influence while coping with competitive promotional pressure, the company's sales rate increased, and the sales/management/R&D rate was 36.47% /4.25%/3.70%, +4.43/-0.38/+0.74pcts, respectively; overall, the company's net return interest rate fell 0.90pcts yoy to 6.11% in the first three quarters of 2024.

Continuously optimize product lines and channel layout. In terms of cosmetics, the company will continue to optimize its product line, especially in core categories such as masks, lotions and cleansing products, to promote technological iteration and upgrade, and strengthen the shaping of brand value; in terms of sales channels, the company actively expands offline channels and new retail stores; in pharmaceuticals, by building a supply chain service platform for pharmaceutical and food homologous products, the product portfolio will be enriched to meet the growing demand for health consumption. The company enhances its brand influence by continuously exploring new growth points.

Investment advice: We expect the company's EPS from 2024 to 2026 to be 0.27/0.33/0.38 yuan, corresponding to the latest PE, 26.8/22.2/19.0 times, respectively, to maintain a “buy” rating.

Risk warning: Competition in the industry is intensifying; new product promotion falls short of expectations; policy supervision is getting stricter.