Core Viewpoint - Guoshou Chengda, a major shareholder of Huaxi Biological, plans to reduce its stake by up to 9.63 million shares, representing no more than 2.00% of the total share capital, following a previous reduction of 5,496,782 shares [1][2] Group 1: Shareholder Actions - Guoshou Chengda currently holds 28.94 million shares, accounting for 6.01% of Huaxi Biological, making it the second-largest shareholder [1] - This marks the second reduction by Guoshou Chengda, which previously sold shares between October 31 and November 12, 2024, at prices ranging from 59.28 to 68.10 yuan per share [1] - Huaxi Biological's controlling shareholder, Huaxi Xinyu, recently completed its first share buyback since the company's listing, acquiring approximately 4.52 million shares for about 257 million yuan, increasing its stake to 60.11% [2] Group 2: Financial Performance - Huaxi Biological's revenue has declined from 6.36 billion yuan in 2022 to 5.37 billion yuan in 2024, with a year-on-year decrease of 18.36% to 3.16 billion yuan in the first three quarters of this year [2] - Net profit for the first three quarters was 252 million yuan, down 30.29% year-on-year [2] - Despite a decline in overall performance, net profit showed improvement in the second and third quarters, increasing by 20.89% and 55.63% respectively, primarily due to effective control of sales expenses [2] Group 3: Strategic Adjustments - In response to ongoing challenges, Huaxi Biological's chairman announced a return to operational management and implemented systematic adjustments in business direction and organizational structure [3] - The company plans to invest 138 million Hong Kong dollars to acquire 11.57 million shares of Saint Pharma, aiming to expand into the small nucleic acid innovative drug sector [3]

Core Viewpoint - The investment in Saint Nor Pharmaceutical is a strategic move for the company to enhance its position in the biopharmaceutical sector, particularly in innovative drug development and to leverage synergies in its core business areas [1][2]. Investment Strategy - The investment amount is approximately HKD 138 million, funded entirely from the company's own resources, and will be paid in installments as per the agreement [2]. - The company recognizes the long development cycles and high risks associated with small nucleic acid drug research and has established risk control and exit arrangements through the investment agreement [2]. Business Development - The company reported a steady increase in sales revenue from its innovative hyaluronic acid products and other bioactive substances, accounting for over 23% of total sales in the first half of 2025 [3]. - Six new bioactive raw material products have been launched, including Hyatrue® cross-linked sodium hyaluronate and BloomColla® recombinant type III humanized collagen [3]. Operational Adjustments - The company has undergone systematic adjustments in its operational philosophy and business direction since March 2025, leading to a significant reduction in sales expense ratio by 12.46 percentage points year-on-year in Q2 [4]. - The focus is on transforming consumer products based on long-term technological barriers and scientific assets, particularly in the fields of cell biology and glycoscience [5]. Organizational Changes - The company is shifting away from hiring external "professional operators" and is instead selecting and training entrepreneurial talents who align with the company's values for management positions [6]. - A one-time management expense of approximately CNY 29 million was incurred during this transition, aimed at laying a solid foundation for long-term development [6]. Scientific Communication - The company is committed to reshaping its scientific image and defending scientific values, aiming to establish a rigorous scientific communication system to counter misinformation in the industry [6].

Investment Rating - The report initiates coverage with a "Buy" rating for Shuiyang Co., Ltd. [3][13] Core Insights - The cosmetics and medical beauty sector underperformed the market, with the Shenwan Beauty Care Index increasing by 0.2% from September 5 to September 12, 2025, lagging behind the Shenwan A Index by 2.7 percentage points [3][4] - Domestic cosmetics brands showed strong growth in August, with key brands under Shumei Co. achieving a 70% growth rate on Douyin and Taobao platforms, indicating a robust performance despite high base effects [3][9] - The report highlights the upcoming Double 11 shopping festival, suggesting that brands should prepare for promotional strategies [3][9] Summary by Sections Industry Performance - The cosmetics and medical beauty sector's performance was weaker than the market, with declines in the Shenwan Cosmetics Index by 0.5% and the Shenwan Personal Care Index by 0.8% during the specified period [3][4] Key Company Review - Shuiyang Co., Ltd. is positioned as a leading technology-driven beauty company in China, with stable revenue between 4 to 5 billion yuan from 2021 to 2024 and an expected gross margin of 63.01% in 2024, up by 10.94 percentage points from 2021 [3][10] - The company has a dual business model of proprietary brands and CP agency brands, with a strong focus on high-end and global market transformation [3][10][12] E-commerce Data - In August, key domestic brands on Douyin and Taobao platforms showed significant growth, with Shumei Co. brands achieving a 70% increase, and other brands like Maogeping and Runben also reporting substantial growth rates [3][14] Market Trends - The report notes that the overall retail sales of cosmetics in July 2025 grew by 4.5%, indicating a recovery in consumer spending [3][17] - The domestic skincare market is projected to reach 271.2 billion yuan in 2024, despite a slight decline of 3.7% year-on-year, with domestic brands gaining market share [3][26] Company Announcements - Shumei Co. has appointed Dr. Karl Lintner, a pioneer in peptide beauty, as the chief scientific advisor, aiming to enhance its global competitiveness in research and development [3][21]