CICC: Maintains outperform rating on BEAUTYFARM MED (02373) with a target price of HK$42.

CICC released a research report stating that based on the operational efficiency of BEAUTYFARM MED (02373), the net profit attributable to shareholders for the years 2025-2026 was raised by 5%/8% to 300-360 million yuan. The current stock price corresponds to a P/E ratio of 20/17x for 2025-2026. The rating of outperforming the industry was maintained with a target price of 42 Hong Kong dollars, corresponding to a P/E ratio of 30/25x for 2025-2026, with a 49% upside potential. The bank believes that the company has consolidated its leading position through the "Three Strong Alliance" and is expected to further enhance its influence, expand market share, and improve profitability through branding, chain operation, and digital upgrades. The bank is optimistic about the growth potential driven by internal growth and external acquisitions. CICC's main points are as follows: Strategic upgrade announced, driving medium to long-term growth through branding, chain operation, and digitalization The company held a strategic upgrade conference, proposing the construction of a group with three major strategies of "super brand, super chain, super digital." 1) Branding: The company plans to upgrade new spaces, experiences, standardized and refined service processes, and strengthen brand promotion and content marketing, collaborate with high-end real estate agencies and joint famous brands to enhance brand influence; 2) Chain operation: The company plans to deepen in 20 core economically developed cities in China, with the short-term plan of cities with annual income exceeding 100 million yuan increased from 8 to 12, and the annual income plan for Beijing and Shanghai increased from over 600 million yuan to over 1 billion yuan, based on which, by scale effect, achieve cost reduction in the supply chain and increase the penetration rate of medical cosmetic and sub-health value-added businesses; 3) Digitalization: With the continuous efforts of a self-developed team of 100 people, the company has built 38 digital systems, with a self-developed ratio of 70%, and plans to further enhance operational efficiency through precision marketing and restructuring customer interaction processes. Further acquisition of 19 franchised stores of NER in the Greater Bay Area to expand coverage and increase revenue and profit The company announced the acquisition of 19 franchised stores of NER in Zhuhai and Dongguan for 40 million yuan. After the acquisition is completed, NER will formally include Zhuhai and Dongguan in its directly operated region, driving the addition of 19 company-owned stores, including 2 medical beauty and 17 beauty stores, thereby deepening the radiation density of the group in core cities of the Greater Bay Area, and the company expects to add nearly 75 million yuan in revenue and 7.5 million yuan in net profit after tax for the group. Active improvement of shareholder returns, optimistic about the broad space under the drive of internal and external growth The company recently announced a long-term shareholder return plan: it will utilize up to 1.2 billion Hong Kong dollars over the next three years to provide shareholder returns, including distributing dividends not less than 50% of net profit attributable to shareholders each year and repurchasing company shares. The bank is optimistic about the broad space under the drive of internal and external growth. Risk warning: Intensified industry competition; medical accident risk; impairment of goodwill risk.