Core Viewpoint - Guizhou BaiLing reported a significant decline in net profit by 35.60% in the first three quarters of 2025, alongside a lawsuit against its actual controller, Jiang Wei, involving claims of approximately 1.76 billion yuan [1][4]. Financial Performance - In the first three quarters of 2025, Guizhou BaiLing achieved revenue of 2.102 billion yuan and net profit of 57 million yuan, representing year-on-year declines of 24.28% and 35.60%, respectively [1][3]. - The company experienced a revenue drop of 31.77% and a net profit decline of 40.73% in the first half of 2025, with over 80% of revenue coming from traditional Chinese medicine products, which saw a 37.07% decrease [2][3]. - Despite a year-on-year increase in revenue and net profit in Q3, the overall performance for the first three quarters remains significantly below expectations [1][3]. Lawsuit and Its Implications - Jiang Wei, the actual controller of Guizhou BaiLing, is facing a lawsuit from Huachuang Securities for a total of approximately 1.76 billion yuan related to a previous financial rescue plan and stock pledge disputes [4][5]. - The lawsuit could potentially impact the company's equity structure, as Jiang Wei's shares in Guizhou BaiLing are nearly 100% pledged [6][4]. - The background of the lawsuit involves Jiang Wei's investments exceeding 2 billion yuan in local ecological agriculture and tourism projects, which led to liquidity issues prompting the financial rescue plan [7].

Investment Rating - The investment rating for the company is "Neutral" with a target price of 13.5 CNY [1][7]. Core Views - The company's revenue decline has narrowed, and cost control has improved performance. In the first half of 2025, the company achieved operating revenue of 3.532 billion CNY, a year-on-year decrease of 23.43%, and a net profit attributable to the parent company of 737 million CNY, down 17.34% year-on-year. The second quarter saw a revenue of 1.741 billion CNY, a year-on-year decline of 11.51%, but a significant increase in net profit by 71.44% year-on-year [1][7]. Financial Performance Summary - **2025 Half-Year Report**: - Operating revenue: 3.532 billion CNY, down 23.43% YoY - Net profit: 737 million CNY, down 17.34% YoY - Q2 revenue: 1.741 billion CNY, down 11.51% YoY - Q2 net profit: 282 million CNY, up 71.44% YoY [1][7] - **Financial Projections**: - 2025E total revenue: 6.271 billion CNY, down 8.3% YoY - 2025E net profit: 811 million CNY, up 24.3% YoY - EPS for 2025E: 0.48 CNY [2][7]. Sales and Cost Management - The company has seen a significant reduction in sales expense ratio, which decreased by 11 percentage points to 39.6% in Q2 2025. This improvement is attributed to efficient spending and a shift towards higher-margin products [7][8]. - Gross margin for Q2 2025 was 68.4%, an increase of 1.7 percentage points year-on-year, driven by a higher proportion of premium products and improved online sales channel performance [7][8]. Market Outlook - The company plans to increase investment in the second half of 2025, with expectations for revenue to gradually improve. The strategy includes launching new products in key categories and focusing resources on profitable online channels [7][8]. - Despite a challenging external consumption environment, the company is expected to maintain a rational approach to spending, leading to a modest decline in annual revenue [7][8].