FIRST SHANGHAI released a research report initiating coverage on BEAUTYFARM MED (02373), assigning a "Buy" rating with a target price of HK$43.7. The report highlights the company's dual growth drivers—organic expansion and strategic acquisitions—which enhance operational and integration capabilities. BEAUTYFARM MED operates multiple brands, including Beauty Farm, Narure, Show Young, and Yanyuan, reinforcing its dominance in high-tier cities.

Key insights from FIRST SHANGHAI include: 1. **Innovative "Dual Beauty + Dual Wellness" Model**: The company has built a comprehensive beauty and health ecosystem, integrating lifestyle beauty, medical aesthetics, and sub-health management. Its multi-brand strategy covers high-end lifestyle beauty, intelligent TCM therapies, non-surgical medical aesthetics, and wellness services, facilitating full-lifecycle customer engagement.

2. **Dual Growth Strategy**: - **Organic Growth**: Leveraging 38 proprietary systems, the company maintains an 80%+ customer retention rate and sub-2% customer acquisition cost. Centralized procurement optimizes supply chains and boosts margins. - **Acquisitions**: Strong cash flow enabled strategic mergers (e.g., Narure, Si Yanli), driving membership growth and net profit margin expansion.

3. **Industry Leadership**: BEAUTYFARM MED capitalizes on branding, chain expansion, and digitalization trends. Its nationwide store network and digital infrastructure solidify its high-tier city presence while transitioning the fragmented industry toward consolidation.

4. **Robust Financials**: - H1 2025 performance showed 478,000 footfalls at directly operated stores (+47.8% YoY) and 120,000 active members (+46.5% YoY). - Revenue reached RMB1.46 billion (+28.2% YoY), with adjusted net profit at RMB191 million (13.1% margin), demonstrating resilience amid macroeconomic pressures.

5. **Valuation**: Using a 10% discount rate and 3% perpetual growth, FIRST SHANGHAI values BEAUTYFARM MED at HK$10.3 billion. The HK$43.7 target implies 65.4% upside, with 2025/26 P/E multiples of 29.8x and 24.5x, respectively.