Zhong Jin: Raise the target price of BEAUTYFARM MED (02373) to 37 Hong Kong dollars and maintain an "outperform" rating.

CICC released a research report stating that it maintains its unchanged net profit forecast for BEAUTYFARM MED (02373) for the years 2025-2026, with the current stock price corresponding to a P/E ratio of 22/20x for 2025-2026 non-recurring net profit after deduction of minority interests. It maintains an outperform industry rating, based on the improvement in the company's shareholder structure leading to a valuation boost, as well as the company's excellent business model, with broad growth potential in the medium to long term through internal and external growth. The target price has been raised by 68% to HK$37, corresponding to a P/E ratio of 27/24x for 2025-2026 non-recurring net profit after deduction of minority interests, representing a 22% upside potential. Main points from CICC: Company Status: According to recent announcements from the company, as of June 25, the former major shareholder CPE has reached a series of related agreements or completed related transactions, intending to sell approximately 51.329 million shares of the company (representing 21.77% of the total issued shares of the company excluding treasury shares). After completing this series of transactions, CPE will no longer be a major shareholder of the company. Investors involved in this series of transactions include long-term foreign healthcare funds, technology innovation strategic investment funds, leading international long-term funds, and international quality hedge funds. The bank believes that this capital raising is beneficial for optimizing the company's shareholder structure and improving liquidity, and is optimistic about the company's potential to enhance its market value as a leading beauty and health chain in the capital market. Exit of former major shareholder CPE, introduction of international long-term capital investment driving optimization of shareholder structure and improvement of liquidity According to the company's announcement, as of June 25, the former major shareholder CPE has reached a series of related agreements or completed related transactions, intending to sell its approximately 51.329 million shares of the company (representing 21.77% of the total issued shares of the company excluding treasury shares). After completing this series of transactions, CPE will no longer be a major shareholder of the company. Investors involved in this series of transactions include long-term foreign healthcare funds, technology innovation strategic investment funds, leading international long-term funds, and international quality hedge funds. The bank believes that this capital raising is beneficial for optimizing the company's shareholder structure, improving market liquidity, and the addition of high-quality international investors is expected to bring abundant industry resources and an international perspective to the business, injecting new momentum into the company's business expansion and innovation, and laying a solid foundation for the company's future market value enhancement and business development. January-May operating data shows outstanding trends, high-quality fundamental growth According to the company's disclosure, consumer spending on equity gold increased by over 20% from January to May 2025, while net consumption increased by over 20% for the same period. Looking at the different business segments, the beauty and health business saw an increase of over 20%, medical beauty increased by 10%, and sub-health medical services increased by over 50%; at the same time, the integration of Nairier after the merger is progressing smoothly, and the bank believes that operational efficiency is expected to drive an improvement in the company's profit margin. Synergistic development of the "double beauty + double health" model, optimistic about growth prospects driven by internal and external growth Looking ahead: Internally, the company continues to optimize the operational efficiency of individual stores, increase the penetration rate of value-added services, and the conversion rate of the original Beautiful Farm Group from beauty to medical beauty and sub-health business increased by +3.7ppt to 28.7% YoY in 2024, and after merging with Nairier, it also increased by +0.6ppt to 24.9% YoY; Externally, the integration and efficiency of Nairier is progressing smoothly, and the bank believes that there is potential for continued expansion of member assets and national footprint through mergers and acquisitions in the future. In addition, the company has introduced stock incentives for the management team, with performance targets covering revenue and profit for the next three years, boosting team motivation; and establishing a long-term shareholder return mechanism, planning to allocate no less than 50% of the annual consolidated net profit for dividends from 2025 to 2027. The bank is optimistic about the company's growth potential as a leader in beauty and health. Risk Warning: Increased industry competition; medical accident risk; impairment risk; policy and regulatory risk.