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In 3Q22, Bloomage Biotech posted annualized operating revenue growth of 28.8%, attributable net profit (ANP) growth of 4.9%, and ex-one-off ANP growth of 33.6% (the growth gap was largely due to the delay in government subsidies). It saw recovery in the growth rate of materials & pharmaceutical machinery, while skincare products maintained high growth and profitability continued to improve. It recorded robust pre-sale of skincare products for the “Double 11” (Nov 11) promotions, alongside steady optimization of product mix, operation and marketing capacity. The lock-up expiries may bring short-term pressure on the stock price, but medium/long-term allocation opportunities also emerge. The Company"s net profit margin (NPM) has entered an upward channel, and the fundamental improvement is visible. The R&D-driven, whole-value chain monetization model is poised to build a multi-brand, large-cap company. We maintain the target price of Rmb159 on 57x 2023E PE and reiterate the “BUY” rating. The growth rate of operating revenue and ex-one-off ANP slightly exceeds expectations, and the delay of government subsidies widens the gap of quarterly profit growth before and after deducting nonrecurring income. In 3Q22, Bloomage achieved operating revenue of Rmb1,385mn, up 28.8% YoY; ANP of Rmb204mn, up 4.9% YoY; recurring ANP of Rmb188mn, up 33.6% YoY. During 1-3Q22, it posted operating revenue Rmb4,320mn, up 43.4% YoY; ANP of Rmb677mn, up 22.0% YoY; recurring ANP of Rmb601mn, up 34.5% YoY. Bloomage receives certain government subsidies each year, which mainly consist of tax rebates (about Rmb30mn-40mn per year) and special funds for R&D (about Rmb40mn-50mn per year) and are continuous and stable. In 3Q22, the Company recorded government grants of Rmb13.65mn in current nonrecurring gains and losses, a decrease of Rmb52.15mn YoY, and expects to receive the remaining portion in 4Q22. The growth rate of raw materials & pharmaceutical machinery is in the recovery channel, and skincare products continue to improve profitability. By business, according to our calculation, the 3Q22 revenue from raw materials rose by 13.2% YoY, and that form pharmacy gained 19.4%, as both businesses recovered after the pandemic subsided (disturbed by the local Covid flare-ups, the growth in 2Q22 was both close to 0). Revenue from functional skincare products rose by 36.5% YoY in the quarter and the selling expense ratio was down by more than 5ppts compared with the same period last year. Though the ratio is still significantly higher than that of its peers, the downtrend is likely to continue, as more best-sellers emerge and the product operation and launch capabilities improve. Robust pre-sale of skincare in the “Double 11” promotions, resonance of high sales growth and improved net profit margin via trending products and iteration. According to the Tmall channel data from mktindex, as of Oct 28, the pre-sale of the four major skincare brands of Bloomage for the “Double 11” shopping festival totaled about Rmb920mn, up 188% YoY, which already reached 130% of the overall sales during the same festival in 2021 (Nov 1~11). Among that, the pre-sale of the major brands is as follows: ①Biohyalux: about Rmb50mn, down 22% YoY, with CR1/CR3 of 31%/72%; ②QuadHA: about Rmb740mn, up 374% YoY, with CR1/CR3 of 37%/76%; ③MedRepair: about Rmb120mn, up 84% YoY, with CR1/CR3 of 48%/98%; ④Bio-MESO: about Rmb20mn, down 34% YoY, with CR1/CR3 of 51%/77%. The Company"s skincare products continue to progress in multiple dimensions: 1) The best-sellers are formed through ingredient innovation, product iteration, and brand promotion, etc. The scale effect and long life cycle of the hot products help enhance profitability. In 1-3Q22, the Company had about nine skincare single products with sales over Rmb100mn. 2) The best-sellers drive the launch and sales of series products, improving customer unit price and synergistically reducing costs and increasing efficiency. 3) The Company"s management in operations, digitalization, and marketing delivery is becoming more refined, and ROI, CRM, and consumer insights are all significantly improved. 4) R&D drives product innovation, cultivating best-sellers while maintaining the novelty. Enhanced R&D can solidify the foundation for long-term growth and consolidate core competitiveness. On Oct 28, 2022, Bloomage newly added 13 core technical personnel (via internal assessment), including one in R&D management, four in the R&D of raw materials, one in the R&D of medical terminal, five in functional skincare R&D, one in functional food R&D and one in production management. As of 1H22, it had invested Rmb179mn in R&D, up 67.9% YoY, and the number of R&D staff reached 626, 159 more than a year ago. Driven by R&D and technology, the Company has deployment in six major categories of bioactives, and as of Oct 2022, it had about 30 synthetic bio-directional projects in the pilot stage. By the end of the year, it is likely to realize the mass production of cosmetic grade collagen, sample preparation of pharmaceutical grade collagen, and mass production of high yield, high purity ergothioneine. Potential risks: Intensified competition in the medical terminal and skincare industry; decline in residents" willingness to purchase optional consumer products such as skincare; monetization of Bloomage"s R&D investment not as expected; medical beauty regulation exceeding expectations; synthetic biology"s large initial R&D investment and fixed asset spending against slow or lagging revenue growth; short-term pressure from lock-up expiries in Nov 2022. Investment recommendation: In the short term, the “Double 11” robust sales may stimulate the 4Q earnings to exceed expectations, while lock-up expiries may dampen share price. From a medium-term perspective, the NPM has entered the upward channel, fundamental improvement is visible and the stock is trading at 40.5x 2023E PE only. In the long run, the Company"s R&D-driven, whole-value chain monetization model is conducive to shaping a multi-brand, large-cap company. We maintain 2022E-2024E ANP forecasts of Rmb1.02bn/1.34bn/1.73bn, up 30.5%/31.6%/28.8% YoY. Considering the above factors and peers’ valuation (Botanee (300957.SZ): 39.4x 2023E PE/1.2x 2023E PEG; Proya (603605.SH): 50x 2023E PE/1.9x 2023E PEG; lmeik Technology (300896.SZ): 45x 2023E PE/1.0x 2023E PEG based on Wind consensus estimates as of closing on Oct 28), we assign Bloomage 57x 2023E PE/1.8x 2023E PEG, maintain the target price of Rmb159 and reiterate the “BUY” rating.【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

关键词： profitability