Lin Wenjia and Sang Ruonan of SPDB International Securities Co., Ltd. recently conducted research on Bloomage Biotech and released a research report "Business and Management Change Process Puts Pressure on the Profit End", this report gives a neutral rating to Bloomage Biotech, believing that its target price is 62.10 yuan, the current stock price is 60.0 yuan, and the expected increase is 3.5%.

Bloomage Biotech (688363).

The

adjustment of the functional skin care products business line and management structure has not yet been completed, resulting in a negative growth of 7.1% in the company's revenue in 3Q24, and a significant increase in the management expense ratio due to the increase in management consulting fees and middle and back office expenses, resulting in a year-on-year decrease of 77% in net profit attributable to the parent company and a year-on-year decrease in net profit margin attributable to the parent company of 5.9ppt. We believe that the company's business and management structure adjustment will still take a long time to implement, and based on the company's performance, we have lowered Bloomage Biotech's 2024E-2026E earnings forecast, but due to the upward shift in the valuation center of the cosmetics industry, we raise our target price to RMB62.1 and maintain Bloomage Biotech's "hold" rating.

The

transformation of the cosmetics business still needs a long time to complete: in the highly competitive environment, Bloomage Biotech will adjust its cosmetics business from 2023. In the process of adjustment, the growth of cosmetics business was under pressure, with a year-on-year decline of about 22% in 3Q24, which was slightly narrower than that in 1H24 (-30%). We believe that it will take a long time to implement the adjustment and reform of the cosmetics business, and the revenue scale of the cosmetics business will shrink year-on-year in 2024. According to management, the company has determined the adjustment idea of the skincare business, which will focus on two major directions: functional sugar ingredients and cell biology. During the "Double 11" period, the company has launched two new products for these two major technology fields - Runbaiyan Firming Cream and Quadi New Generation CT50 Cream. We look forward to the performance of the two new products during the "Double 11" promotion, and hope that the performance of "Double 11" will drive the company's revenue to stabilize and recover in the fourth quarter.

Medical Aesthetics Business Drives Business Growth and Profit Expansion: Raw Materials Business Revenue was flat year-on-year in 3Q24, and the medical terminal business became the company's only growth business line in 3Q24 against the backdrop of pressure on the skincare business, with revenue increasing by about 10% year-on-year. During the period, the company released new medical aesthetic products - Runzhi Gege Needle and Runzhi Feiran Needle, focusing on anti-aging of the neck and mouth, which will be fully listed in the channel in 4Q24 and 2025, and is expected to cover thousands of institutions to complete sales conversion. We believe that Bloomage's clear layout of medical aesthetic institution education and sales channels is the main factor that will help the company's new medical aesthetic products achieve good business growth, so we expect the expansion of revenue scale after the volume of medical aesthetic products in 2025. At the same time, the increase in the proportion of medical aesthetic products with high gross margin also drove the company's gross profit margin in 3Q24 to increase by 1.3ppt year-on-year to 72.4%. We believe that the growth of the skin care business has not yet recovered, and the growth of the medical beauty business will drive the company's gross profit margin to continue to improve.

High management expense ratio puts short-term pressure on profit margins: Bloomage Biotech's sales expense ratio in 3Q24 was well controlled, down 3.1ppt year-on-year to 42.5%, but the management expense ratio and R&D expense ratio increased by 6.6ppt and 2.7ppt year-on-year to 16.6% and 10.6% respectively. The increase in the management expense ratio is mainly due to (1) the increase in middle and back office expenses (the increase in personnel costs from the transformation of salary sets); (2) The consulting fee paid for the reform of the management system was 26 million yuan. The increase in R&D expenses was mainly due to the Company's continued support for R&D investment, especially in innovative business subsidiaries such as Hainan Regenerative Medicine Center. Driven by the above factors, the company's 3Q24 core operating margin decreased by 5.1ppt year-on-year to 1.3%. We believe that in the fourth quarter, under the influence of "Double 11", the company's sales expense ratio will increase significantly quarter-on-quarter, while the management expense ratio is expected to improve quarter-on-quarter.

When the asset impairment action is in progress: As of the end of September 2024, Bloomage Biotech's credit impairment and asset impairment during the year totaled RMB58 million, a significant year-on-year increase. The management said that the company will continue to make provision for asset impairment losses in the fourth quarter, hoping to improve asset quality in 2024 and prepare for the coming year.

Investment risk: slowing industry demand; increased online competition; Sub-brand growth was less than expected.

According to the calculation of the research report data released in the past three years, the research team of Zhang Jiaxuan of Soochow Securities has studied the stock in depth, with an average forecast accuracy of 71.55% in the past three years, and its forecast of attributable net profit in 2024 is 650 million yuan, and the predicted PE is 44.44 based on the current price.

The breakdown of the latest earnings estimates is as follows:

A total of 21 institutions have rated the stock in the last 90 days, 12 have given a buy rating, 8 have an overweight rating and 1 have a neutral rating. The average institutional price target over the last 90 days is 64.47.

The above content is compiled by Securities Star based on public information, generated by intelligent algorithms, and does not constitute investment advice.