Event:

The company released the 2024 performance forecast, and it is expected to achieve a net profit attributable to the parent company of 146~175 million yuan in 2024, a year-on-year decrease of 70.47%~75.36%; The non-net profit attributable to the parent was 0.80~109 million yuan, a year-on-year decrease of 77.78%~83.69%. 4Q2024 is expected to achieve a net profit attributable to the parent company of -187 million ~ -216 million yuan, a year-on-year change from profit to loss.

Comments:

Functional skin care is under pressure, strategic investment increases, and impairment is provided, which affects the operating performance of the year: The main reasons for the pressure on the profit side of the company in 2024 are: 1. The functional skin care products business is still in the adjustment stage due to factors such as intensified market competition, industrial cycle fluctuations and strategic adjustments; 2. More than 70 million yuan of consulting company fees and equity incentive expenses arising from the upgrading of the organizational structure of management reform and the reform of the salary system; 3. The company promoted the transformation of the supply chain, including the production capacity layout of Haikou, Tianjin, Dongying, Xiangtan, etc., and the related expenses increased by more than 100 million yuan; 4. Provision for impairment of large assets of about 210 million yuan.

Raw materials business remains stable, medical aesthetic business grows rapidly, and functional skin care products business is expected to bottom out: In terms of raw materials business, benefiting from the localization operation promoted in the internationalization strategy, the company's sales volume in Europe, Japan, the Americas and other places has continued to grow, and the leading position in the global bioactive substances market has been further consolidated, and the raw materials business is expected to achieve high single-digit growth in 2024. Relying on six R&D platforms, the company's raw material territory continues to expand, and in December 2024, its new cosmetic raw material N-hyaluronyl glutamate sodium was successfully recorded, and 5 effective cosmetic raw materials have been recorded. At the same time, the company's self-developed PDRN raw materials will enter the market in 2025, and we believe that PDRN raw materials are expected to become the next explosive raw materials after hyaluronic acid.

In the medical cosmetology business, the medical cosmetology sector of Bloomage Biotech has set sail again since 2021. In terms of brand, Runzhi was established as the main brand; In terms of products, through the re-sorting of the Runzhi series, a product matrix from Runzhi Natural to Runzhi No. 5, with small to large molecular weight, and from shallow to deep injection level has been established. In particular, the star-level big product - Runzhi Doll Needle, with its R&D strength in raw materials and cross-linking technology, has become the only cross-linked hyaluronic acid in the domestic price band of 400-800 yuan, and its strong cost performance has driven Bloomage Biomedical's medical aesthetic business revenue to achieve high growth for several consecutive years, even in 2024, under the background of intensified competition in the industry, the revenue of Doll Needle will still maintain rapid growth. In October 2024, in order to further enhance the competitiveness of the medical aesthetic business, the company launched two new medical aesthetic injections, "Runzhi Gege" and "Runzhi Feiran", focusing on neck and lip indications. "Feiran" is positioned as a high-end, adopting the strategy of "slow fire and fine stewing", and the sales rhythm is slowly unfolding. We believe that the launch of the two new products will effectively drive the growth rate of the company's medical aesthetic business revenue in 2025, and with the increase in the proportion of medical aesthetic business in the company's revenue and profit, the growth of medical aesthetic business line revenue in 2025 will play a more significant role in driving the company's overall performance.

In addition to its own R&D, the company has also made significant progress in its extended investment projects. In January 2025, Regimin Biotech has taken the lead in completing the pilot test of the world's first synthetic PDRN raw material, and at the same time, Regimin's medical aesthetic grade PDRN products have completed the filing of medical device master files, and are also expected to obtain the first batch of Class III device certificates in China. The A round of financing of Regiming Biotech was led by Huixi Industrial Investment Biotech Venture Capital (Huzhou) Partnership, which is held by Bloomage Biotech, and there are currently no three types of compliant products for PDRN in China, once Regimin's products are approved, it is expected to bring considerable investment income to Bloomage Biotech.

In terms of functional skin care products, we will continue to promote strategic upgrading, clarify the new positioning of "driven by synthetic biology, deeply cultivate functional sugars, and lay out the regenerative medicine track", and continue to consolidate the business foundation from process to organizational operation, talent training, product system construction, etc., and in 2024, its sub-brands Runbaiyan and Quadi will launch two major products, "Runbaiyan Collagen Firming Cream" and "Quadi CT50 Anti-Collapse Cream", respectively, putting forward the concept of solving skin problems from the cell level. The company is reinventing functional skincare products through a more advanced regenerative concept, and we expect the company's functional skincare business to begin to regain momentum in the second half of 2025.

Whole industry chain platform enterprises, maintain "buy" rating: Considering that the company's functional skin care products business is still in the adjustment stage, we lower the revenue forecast for 2024-2026 to 53.7/61.5/7.30 billion yuan (5%/6%/5% respectively), and reduce the net profit attributable to the parent company in 2024 to 160 million yuan (66% reduction) in 2024, taking into account the expenses generated by strategic investment in 2024 and the impact of impairment provision. Basically maintain the forecast of net profit attributable to the parent company in 2025, taking into account the improvement of organizational efficiency after the management reform, the net profit attributable to the parent company in 2026 will be raised to 770 million yuan (the increase is 7%), and the current stock price will correspond to the PE of 145/40/31 times from 2024 to 2026 respectively. The company has opened up the whole industry chain business system from raw materials to medical terminal products, functional skin care products, and functional foods, although the management change has brought short-term profit pressure, but in the long run, the company's optimization and upgrading of the functional skin care products business, forward-looking strategic investment, will further enhance the company's competitiveness, at the same time, the proportion of medical beauty business revenue with stronger profitability and higher threshold continues to increase, which will help the company's internal valuation rationalization upward, we are firmly optimistic about the company's solid scientific and technological strength, The outlook is a "buy" rating.

Risk warning: the risk that the company's business change is less than expected, the industry competition is intensified, and the risk of industry policy changes.