Bloomage Biotech released its 2024 annual performance forecast earlier, and it is expected that the net profit attributable to the parent company for the whole year will decrease by 70.47%-75.36% year-on-year. The significant decrease in net profit attributable to the parent company was mainly due to the fact that the company's business was in the transition stage, the revenue of the cosmetics business, which accounted for the largest proportion of revenue, decreased significantly year-on-year, and there were more one-time expenses such as management expenses related to changes and impairment provisions during the year. We lower our 2024E-2026E earnings forecast and lower our TP to RMB52.2. Maintain "Hold" rating.

The inflection point of the functional skin care products sector has not yet arrived: Bloomage Biotech will put reform in the first place in 2024.

Although the raw materials and medical terminal business will still be relatively stable in 2024, the reform of the functional skin care business, which accounts for the largest proportion of revenue, has put the company as a whole into a negative growth dilemma. This reform mainly includes organizational operation, talent training and product system construction. At present, with the main leaders of functional skin care products brands in place, the company will launch new products around glycobiology and cell biology, and the management expects that the company's functional skin care business is expected to bottom out in 2025, but we believe that when the inflection point will be ushered in still needs to be observed to see the certainty of the successful launch of new products.

A number of one-time expenses dragged down performance, and the core operating margin is expected to improve in 2025: As a result of Bloomage Biotech's management changes, the company recorded a number of one-time expenses in 2024, exceeding RMB70 million: (1) management consulting expenses: fees paid to management consulting companies due to organizational structure upgrades, compensation system changes (including personnel optimization expenses), equity incentives, etc.; (2) Equity incentive: The equity incentive plan launched by the company in 2021 will be amortized in 2024 and will not have corresponding expenses in 2025. In addition, the Company also recorded other one-time expenses in 2024, including the Company's provision of RMB210 million for assets such as accounts receivable, inventory and goodwill, as well as investment in innovative business and transformation and upgrading of production and supply chain. We believe that the corresponding expenses incurred during the corporate reform period are necessary and expect the company's core operating margin to improve in 2025 with higher revenues and without the impact of these one-time charges.

Lowering Earnings Forecast and Price Target, Maintaining 'Hold' Rating: As the results of the company's reforms have not yet been concretely demonstrated, and a number of one-time charges have weighed on performance, we have lowered the company's 2024E earnings forecast in line with the company's earnings forecast; Considering that the certainty of the recovery of functional skin care revenue is not yet clear, the company lowered its 2025E-2026E earnings forecast and lowered its target price to RMB52.2.

Investment risk: slowing industry demand; increased online competition; Management change is not working as expected.