By~health （300146） Revenue Down on High Base， Profit Dented on Increased Expenses

Rating (Maintain):BUYTarget price (RMB):15.37 Huatai Research Interim Results Review 13 August 2024 | China (Mainland) Food SAC No.E0570523100001AnalystGONG YuanyueSFC No. BQL737wooswanluen/buce+(86)212997 2228 Revenue slid on highbase,profit constrained on increased expensesBy-health's revenue/attributable net profit (NP)/recurring attributable NP wereRMB4,610/890/830mn (-17.6/-42.3/-42.8% yoy) for 1H24 and RMB1,970/160/120mn (-20.9/-68.1/-73.5% yoy) for 2Q24. We attribute the temporary strain onomni-channel strategy and extensive product lineup, including divergences amongvarious e-commerce platforms and product segments. This year, By-health plansto concentrate on its main brand and Life-Space, consolidating offine salesdistribution, and expanding into lower-tier markets. We estimate 2024/2025/2026EPS at RMB0.70/0.83/0.97 and value the stock at 22x 2024E PE, at par with itspeers' average on Wind consensus, Our target price is RMB15.37. BUY. Keydata Majorproductrevenue slid on consumer sentiment/competition By-health has continued to strengthen its brand presence and has deployedmulti-brand blockbuster products. However, revenue from major products hasfaced short-term adjustments due to shifts in the consumption environment andintensifying competition. The company is focused on improving operational qualityand proactively refining its strategy. For 1H24, By-health's revenue from its mainbrand was RMB2.64bn (-19.8% yoy): revenue from KEYLID was RMB590mn(-16.8% yoy); its probiotic brand Life-Space's domestic revenue was RMB210mn(-24.8% yoy), while LSG's overseBs revenue was RMB510mn. Sourcc: Wind Short-term NPM dented on raw-materlal price hikes, increased expensesFor 1H24, the GPM fell 1.8pp yoy to 68.6% (2Q24 GPM slid 3.6pp yoy to 66.8%):specifically, the GPM for distribution/online direct sales dipped 0.2/6.1pp yoy to68.3/72.1%. We attribute the GPM declines mainly to a 172.4% yoy increase in ASPof major materials such as fish oi. For 1H24, the sales expense ratio rose 6.8pp yoyto 39.5% (2Q24: +7.9pp yoy to 50.6%), chiefly owing to increased investments inbrand promotion and higher platfom expenses due to structural changes ine-commerce platforms and increased reliance on paid traffic; the administrativeexpense ratio edged up 1.8pp yoy to 5.5% (2Q24: +2.4pp yoy to 6.5%). Awaiting macroeconomic improvement; maintain BUY Given the subdued recovery in the consumer market, ongoing investments, andthe impact of equity incentive amortization, we revise down our earnings forecssts,andestimate2024/2025/2026EPSRMB0.70/0.83/0.97(previous:RMB1.11/1.25/ 1.39). Our target price is RMB15.37 (previous: RMB22.26). BUY. Risks: intensified competition; weaker macroeconomic growth than we expectfood-safety issues. Disclaimers Analyst Certification IWe, GONG Yuanyue, hereby certify that the views expressed in this report accurately reflect the personal views of theanalyst(s) about the subject securities or issuers; and no part of the compensation of the analyst(s) was, is, or will be, directly orindirecty, related to the inclusion of specific recommendations or views in this report. General Disclaimers and Disclosures The information herein is strictly confidential to the recipient. This report is intended for HFHL, its clients and associatedcompanies. Any other person shall not be deemed a client of the Company merely from his or her receipt of this report. This report is based on information deemed rellable and publicly available by HFHL, but HFHL and its associated company(ies)(collectively, hereinafter “Huatai") makes no guarantee as to the accuracy or completeness of such information. The opinions, assessments and projections contained herein only reflect the views and judgments at the issuance date. Huataltimes. The prices, values and investment returns of the securities or investment instruments referred to herein may fiuctuate.modified without notice by Huatal, and investors shall pay attention to such updates or modifications when necessary. HFHL is not a U.S. Financial Industry Regulatory Authority ('FINRA') member firm, and HFHL research analysts are notregistered/qualified as research analysts with FINRA. the purchase or sale of any security or financial instrument and in any jurisdiction where such offer or solicitation would be illegal.Such views and recommendations are not intended to provide personal investment advice and does not take into account thespecific investment objectives, financial situation and the particular needs of any specific person. Investors should give sufficientconsideration to their own particular circumstances, and fully understand and use the contents of this report, which should not beseen as the sole factor to rely on in making investment decisions. Huatai and the report's authors shall under no circumstance beheld liable for any direct, indirect or consequential losses or damages arising frorn or in connection with the use .or reliance of thisreport or its co