Core Insights - The functional skincare industry in China is undergoing significant adjustments, with leading company Huaxi Biological (688363.SH) facing short-term performance pressures while attempting a strategic transformation [2][10] - Despite a decline in revenue and net profit, there are signs of improvement in operational quality in Q2 2025, indicating potential for long-term value reconstruction [2][5] Financial Performance - In the first half of 2025, Huaxi Biological reported revenue of 2.261 billion yuan, a year-on-year decrease of 19.57%, and a net profit of 221 million yuan, down 35.38% [3] - The net profit margin showed signs of recovery in Q2 2025, with net profit reaching 119 million yuan, a year-on-year increase of 20.89% [5] Business Segment Analysis - The skincare innovation transformation business saw a significant revenue drop of 33.97%, contributing only 40.36% to total revenue, down from 52.1% the previous year [4] - The raw materials and medical terminal businesses demonstrated resilience, with raw material revenue at 626 million yuan, a slight decline of 0.58%, and medical terminal revenue at 673 million yuan, down 9.44% [7][8] Strategic Adjustments - The company is shifting its strategy from "scale-oriented" to "efficiency-oriented," which includes reducing ineffective marketing expenditures [4] - The chairman and general manager, Zhao Yan, is leading a deep adjustment in the skincare segment, which is expected to take about six months for noticeable improvements [10] Cash Flow and Profitability - The overall gross margin remains high at 70.99%, with specific product lines like medical-grade hyaluronic acid achieving margins over 85% [6] - Operating cash flow for the first half of 2025 was 218 million yuan, a decrease of 17.49%, primarily due to reduced sales collections from the skincare business [6]