Key takeaway

In 3Q26, the company's revenue rose 20.16% YoY, with growth accelerating on solid growth across both offline and e-commerce channels. Net profit attributable to shareholders of the parent company rose 17.09% YoY, while net profit attributable to shareholders of the parent company after deducting non-recurring items increased 32.54% YoY. Product mix upgrades drove the gross margin to 52.36% in 3Q26, up 6.46pcts YoY. Operating efficiency continued to improve, with the gross margin-selling expense spread reaching 21.54%, up 1.15pcts YoY, and the net margin after deducting non-recurring items reaching 11.79%, up 1.10pcts YoY.

Looking ahead, the company's target of doubling both revenue and profit during the 15th Five-Year Plan period points to steady growth. On the product side, the penetration of the Medical Research series' portfolio of blockbuster products into offline channels remains at an early stage, while smart oral care, dental healthcare, and dental aesthetics businesses have entered the incubation stage. On the channel side, the company continues to pursue intensive distribution, strengthen key accounts, develop e-commerce and new retail in parallel, and expand new channels. Its entry into Vietnam and overseas supply chain pilot programs open up medium-term growth opportunities.

Event

The company released its 3Q26 financial results: In 9M26, the company achieved revenue of RMB1.425bn, up 16.05% YoY. Net profit attributable to shareholders of the parent company was RMB161mn, up 18.32% YoY. Net profit attributable to shareholders of the parent company after deducting non-recurring items was RMB147mn, up 32.43% YoY. Basic EPS was RMB0.93, up 18.32% YoY. Weighted ROE was 10.46%, up 1.27pcts YoY.

Quick Take

Revenue growth accelerated in 3Q26, with strong profit growth. On a quarterly basis, the company achieved revenue of RMB464mn in 3Q26, up 20.16% YoY. Growth accelerated further from 15.1% in 1Q26 and 13.2% in 2Q26, likely driven by simultaneous growth in its offline and e-commerce channels. In offline channels, the company advanced refined channel operations, improved its distributor network, reinforced its presence in traditional channels such as supermarkets and convenience stores, and tapped regional growth potential. The e-commerce channel drove sales of differentiated and functional blockbuster products. In 3Q26, the company's net profit attributable to shareholders of the parent company was RMB59mn, up 17.09% YoY, while net profit attributable to shareholders of the parent company after deducting non-recurring items was RMB55mn, up 32.54% YoY. The difference between the two was mainly due to lower government grants and financial asset-related gains.

Product mix upgrades lifted the gross margin, while the gross margin-selling expense spread and operating efficiency continued to improve. The company's gross margin was 52.59% in 9M26, up 2.10pcts YoY, and 52.36% in 3Q26, up 6.46pcts YoY. This was mainly driven by a higher contribution from high-margin efficacy-focused products. On the expense side, in 1Q-3Q26, the company's selling, administrative, R&D, and financing expense ratios were 33.48% (+0.44pct), 3.93% (+0.11pct), 3.11% (-0.16pct), and -0.56% (+0.10pct), respectively. In 3Q26 alone, the selling, administrative, R&D, and financing expense ratios were 30.82% (+5.31pcts), 4.46% (-0.30pct), 3.17% (-0.55pct), and -0.54% (+0.13pct), respectively. The gross margin less selling expense ratio was 19.11% (+1.66pcts) in 1Q-3Q26 and 21.54% (+1.15pcts) in 3Q26. The increase in the company's selling expense ratio was likely driven mainly by upfront investment ahead of the Double 11 shopping festival. Nevertheless, the gross margin less selling expense ratio continued to improve overall, while online operating efficiency continued to rise. Net margin was 11.28% (+0.22pct) in 1Q-3Q26 and 12.79% (-0.33pct) in 3Q26. In terms of operating efficiency, inventory turnover days declined by 14 days YoY to 76 days in 1Q-3Q26, reflecting progress in channel inventory destocking and lean supply chain management.

Looking ahead, the company's target of doubling both revenue and profit during the 15th Five-Year Plan period provides a clear direction for steady medium- to long-term growth, with product upgrades and channel expansion driving growth. On the product side, the offline penetration of the company's portfolio of blockbuster products in its medical research series remains at an early stage, while its smart oral care, dental healthcare, and beauty businesses are entering a ramp-up and incubation phase. On the channel side, the company continues to deepen distribution, strengthen key accounts, advance e-commerce and new retail in parallel, and expand into new channels. Its entry into the Vietnamese market and overseas supply chain pilot programs create room for medium-term growth.

Earnings forecast: The company's revenue is forecast at RMB1.98bn, RMB2.27bn, and RMB2.58bn for 2026–2028, up 15.5%, 14.3%, and 14.1% YoY, respectively. Net profit attributable to shareholders of the parent company is forecast at RMB217mn, RMB258mn, and RMB305mn, up 19.7%, 18.9%, and 18.4% YoY, respectively, corresponding to P/E multiples of 26x, 22x, and 18x. We maintain our “Buy” rating.

Risks: 1) Risk of raw material price fluctuations: The principal raw materials used in the company's products include silica, sorbitol, sodium lauryl sulfate, fragrances and flavorings, toothpaste tubes, and packaging boxes. Their upstream inputs primarily include commodities such as corn, palm oil, petroleum, and wood pulp. Significant fluctuations in the company's raw material procurement prices could adversely affect its operating performance. 2) Product quality risk: The Company's main products are daily consumer goods that are used relatively frequently. Any quality issues with the Company's products may affect the user experience and consumers' health. Moreover, any high-profile quality or safety issue could have a relatively serious negative impact on the Company's brand image and future development. 3) Brand image maintenance risk: After years of development, the Company has built “Leng Suan Ling” into a well-known, high-quality brand favored by a broad range of consumers. If a large number of imitation products emerge in the market, the image of the Company's products may be damaged, which may constrain future revenue growth.