Beauty Farm Medical and Health Industry Inc. (XC5.F) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, everyone. Welcome to the Beauty Farm 2025 Interim Results Conference Call. Please welcome, Ms. Vivian Lu, Investor Relations Director of Beauty Farm, to host today's conference. Please go ahead.

Hello, everyone. Welcome to the Beauty Farm 2025 Interim Results Presentation. Joining us today are Mr. Li, Yang, Chairman of the Board; Mr. Lian, Songyong, Vice Chairman of the Board and CEO; and Ms. Zhou, Min, Board Secretary and CFO. Before we begin, please note that today's presentation may contain forward-looking statements. The company will also discuss non-IFRS financial measures. For definition, please refer to our results announcement. Unless otherwise stated, all figures mentioned are in RMB. Our agenda today consists of 2 parts: first, the presentation from management; second, a Q&A session. Now please join me in welcoming our CEO, Mr. Lian, to deliver his remarks.

Hello, everyone, I'm Lian Songyong. Welcome to the Beauty Farm 2025 Interim Results Conference Call. Beauty Farm has journeyed through 32 years from our first store in Hainan to becoming a chain board presence in over 100 cities today. We've always believed that time is the fairest witness and true quality lies in the details of everyday effort. Over the past 32 years, we've weathered many storms and accumulated strength, ultimately building Beauty Farm into the remarkable brand it is today. With humility and respect, we uphold every commitment we make to our customers, investors, employees in society. Time will always reveal the truth, and our customers' choices are the best answer of all. We've always committed -- we've always been committed to deeply exploring our business model. In 2010, we pioneered in China a unique business model, integrating beauty services with medical services, our dual beauty model. We evolved this into the dual beauty plus dual wellness comprehensive business model, leveraging over 500 beauty and wellness stores. We have built customer trust and gained deep insights into their needs, extending services to include aesthetic medical services and subhealth medical care covering the full life cycle. Our ability to thrive across economic cycles over the past 32 years is a strong testament to the significant advantages of our business model. From the customer experience perspective, we provide comprehensive one-stop services that meet diverse needs across different life stages, from daily skin care to advanced aesthetic medical services and external beauty to anti-aging for the body. From a business perspective, under the dual beauty, dual wellness model, we've achieved efficient cross-business synergy and rotational growth, mitigating industry volatility. Our 3 core businesses work in unison to maximize long-term member value, driving sustainable revenue growth while addressing the challenge of high customer acquisition costs. In 2024, our average annual revenue per store exceeded RMB 10 million with value-added business contributing over 45% of revenue. Meanwhile, our customer acquisition-related expenses accounted for less than 2% of total revenue, significantly below the industry average. These figures clearly demonstrate the excellence of our business model. I believe China's beauty industry is undergoing fast consolidation. Beauty Farms' organic growth plus external expansion strategy has been proven through our acquisition of Naturade, second largest brand in the industry. Since the acquisition in July 2024, we have in less than 1 year achieved a leap from business integration to capability symbiosis. In the first half of 2025, Naturade delivered a good performance with revenue reaching RMB 277 million. It is not merely a result of scale addition, but rather the 1 plus 1 larger than 2 synergy effect. By optimizing the supply chain, standardizing digital operations and integrating customer resources, we improved operational efficiency. Naturade's adjusted net profit margin surged from 6.5% pre-acquisition to 10.4%, quickly aligning with the profitability level of a listed company. Due to the remarkable results, we announced in May this year an additional 20% stake acquisition in Naturade, raising our ownership to 90%. This move is not only a vote of confidence in its potential, but also a strategic choice to strengthen control and create greater value for our shareholders. Post acquisition, we have continued to strengthen Naturade's core advantages. This year, our group's first AI-powered digital transformation flagship project, Intelligent Beauty plus Wellness 2.0 system, will be implemented at Naturade. It integrates the expertise of 7 renowned TCM experts and institutions combining traditional Chinese medicine theory with modern diagnostic technology. Through 5 dimensions, constitution, tone characteristics, meridians, internal organs and skin, AI-generated reports will provide data-driven visible effect, full cycle health management, leading a new trend in intelligent beauty and wellness. Its success validates our end-to-end capabilities in acquire, integrate and empower. From strategic alignment to culture integration, business collaboration to centralized platform enablement, we've developed a replicable integration methodology. Looking ahead, we will leverage this model to pursue opportunities to consolidate resources within the industry. Let us return to the industry and look at its new driving forces. With the fast pace of life, increasing pressure and changes in social interactions, consumer demand is shifting from material pursuit to emotional connection and spiritual resonance. According to a report by the China Consumers Association, emotional value has become a key factor influencing consumption decisions among younger generation. A media research forecasts that China's emotional economy market will reach RMB 2.3 trillion in 2025 and surpass RMB 4.5 trillion by 2029, creating vast opportunities for the industry. Our core users are professional women in China's top-tier cities. They play crucial roles in both the workplace and their families, yet they are also the group mostly in need of care and support. As women's self-care consciousness awakens, enhancing happiness and quality of life has become a new customer service scenario. Our mission is not only to provide professional and comfortable services, but also to create a section for women's heart, a place where they can temporarily set aside their social roles and levels, enjoy relaxation and emotional fulfillment and reconnect with their true selves. Through our dual value proposition of technology-driven functional skin care plus immersive urban healing retreats, we are reshaping the premium consumption landscape. Every treatment becomes both a scientific renewal for the skin and a proactive retreat for the mind and soul. As China's #1 and a globally leading beauty and wellness service brand group, we focus on serving high-end female customers in top-tier cities across China, building a full life cycle service network with a customer-centric approach. Back to our financial performance. In the first half of this year, our revenue and profits grew countercyclically, reaching new highs. Total revenue reached RMB 1.46 billion, up 28% year-on-year. As revenue steadily increased, scale effects became more pronounced, driving gross margin up by 2.3 percentage points to 49.3% Y-o-Y. Net profit rose to RMB 170 million, representing a significant 35.5% Y-o-Y increase. Notably, adjusted net margin reached 13.1%, a record high, demonstrating our company's strong profitability even under macroeconomic stress test conditions. Behind this result lies the unwavering choice of our customers. In the first half of this year, foot traffic at our directly operated stores reached 920,000 visits, up 48% year-on-year. The number of active direct store members rose to 120,000, a 47% increase. Leveraging the dual beauty plus dual wellness business model, 20% of beauty and wellness members purchased value-added services such as aesthetic medical services or subhealth medical care. Our cash-generating capability has become increasingly robust. In the first half of 2025, net cash flow from operating activities reached RMB 410 million, up 84% year-on-year. As of June 30 this year, cash and cash equivalents totaled RMB 2 billion, net increase of 28% Y-o-Y. This ample reserves not only support our long-term development, but are also used for shareholder returns. Since listing, we've announced a cumulative dividend exceeding RMB 297 million with a clear plan to allocate 50% of net profit attributable to shareholders for dividends over the next 3 years, sharing long-term value with our shareholders. China's first-tier cities are both well-kept and core concentrations of high-net-worth households. We continue to deepen our presence in 20 core cities with high-net-worth clients. As of June 30, the total number of directly operated stores reached 276, of which 157 were in Beijing, Shanghai, Guangzhou and Shenzhen, accounting for 58% of the total. Leveraging the strong high-end consumption power in these top-tier cities, revenue in the 4 cities grew 52% Y-o-Y in the first half of 2025, contributing 65% of the group's total revenue. Going forward, we will continue to strengthen operations in core cities and further build competitive barriers. And next, I will provide a detailed overview of the development of our 3 core business. Beauty and wellness services are the core traffic entry point of our dual beauty-dual wellness model, serving a key role in connecting with consumers. To capture long-term growth opportunities, we implement a multi-brand strategy in our foundational beauty and wellness business using a differentiated brand metrics to address the needs of segmented customer groups. Currently, we've established a 3 brand metrics; Beauty Farm high-end flagship beauty services, Palaispa premium professional beauty chain and Naturade GTM-based intelligent beauty and wellness services. Looking ahead, we'll continue to expand the boundaries of these brand metrics to offer a richer brand portfolio that meet diversified needs. In the first half this year, our market share grew countercyclically, demonstrating the resilience of an industry leader across the cycles. Revenue from beauty and wellness services reached RMB 810 million, up 30% year-on-year with gross margins improving to 42%, a 2 percentage point increase. Foot traffic at directly operated stores reached 850,000 visits, up 49% Y-o-Y, which active -- while active direct store members rose to 112,000, up 46%. On the product front, Beauty Farm continues to select professional grade products with a global perspective. 32 years ago, we partnered with Germany's [ Bob Hartmann ] to establish [indiscernible] in producing German origin skin care, German training systems and enduring treatment philosophies to China. This 32-year partnership reached a new milestone in May this year with a comprehensive upgrade of the classic [indiscernible] series embodying the slow care philosophy with core formulations and evoking emotional resonance with members spanning 32 years. Meanwhile, the [indiscernible] family has been upgraded, extending from visual care to neck to sculpt anti-aging, directly supplying collagen to meet the efficacy-focused needs of the younger generation. In terms of traffic expansion, thanks to the group's strong brand influence, digital marketing capabilities and omnichannel operations, customer acquisition efficiency continues to improve. Private domain refined operations have advanced through customer-tiered marketing and referral programs. Over 46% of new members came from private channels, reducing acquisition costs. In public channels, we piloted an employee brand ambassador strategy, bring stuff to the forefront. In the first half, we developed 51 professional skin care expert KOL personnel, creating a complete loop from content seating to sales conversion. In the second half, we will invite members to the Spotlight, introducing 88 real members as inside officers, sharing authentic experiences to amplify brand voice. By listening to genuine member needs and feedback and fostering deep interaction and collaboration, we co-create brand value with our members. Regarding aesthetic medical services, China's medical beauty industry is undergoing profound transformation. Market education has made the leap from 0 to 1. Social acceptance has increased as well. The consumer base continues to expand. Meanwhile, with frequent approvals of new upstream products, product iteration has accelerated. Against this backdrop, supply side innovation and traffic competition among institutions combined, restoring consumer choice, consequently, customer trust has become the core competitiveness of medical aesthetic institutions. They must earn long-term trust through professional services. In the first half, revenue from medical aesthetic services reached RMB 500 million, up 13%, with gross margin at 56.9%, up 1.8 percentage points. We continue to attract cornerstone business customers to our clinics. In the first half, direct store visits totaled 50,000, up 28% Y-o-Y and active members increased to 24,000, also up 28%. Regarding clinic network layout, we continue to deepen our presence in core cities. As of June 30, we operate 27 medical aesthetic clinics. In March, the CellCare Changsha Clinic was upgraded. And in August, the grand opening of the Guangzhou Beauty Farm Medical comprehensive flagship clinic took place. This is currently the largest and most fully featured medical aesthetic and subhealth flagship clinic in China, filling the gap in Guangzhou while further strengthening our Beijing, Shanghai, Guangzhou, Shenzhen strategic layout. So why do we earn customer trust? CellCare Aesthetic Medical Services as a high-end Chinese brand adheres to fully direct operated clinics and uphold the medical essence. With top-tier professionals, advanced technology, superior standards and exceptional service quality, we provide a professional, safe and comfortable medical aesthetic experience, including our expertise will continue to strengthen our talent advantage. During the ninth anniversary of the CellCare topology aesthetics, we launched the CellCare [indiscernible] master team, refining master-level aesthetic capabilities and technical essence to standardize and replicate our medical capabilities. On the industry accreditation front, our medical team has accumulated over 700 professional certifications, solidifying the foundation of our medical expertise with strong intangible capabilities. In terms of aesthetics, the CellCare topology aesthetic system, guided by the concept of innate beauty shine freely was upgraded against this year, encouraging women to express themselves confidently regardless of attention of time. These upgraded exercises more detailed need, highlighting 3-dimensionality dynamism and smoothness, shifting the standards from a static block style flat beauty to more vibrant and storytelling block-ready beauty, creating a livelier aesthetic standard. The subhealth medical business continues to maintain strong growth momentum. Topology medical focuses on functional medicine and female gynecological anti-aging services, delivering an outstanding overall performance in the first half of the year. Foot traffic at subhealth medical direct operated stores reached 19,000 visits, up 76% Y-o-Y, while active members rose to 7,014, up 93%. As a result, revenue in the first half of 2025 reached RMB 154 million, an increase of 108% Y-o-Y with its contribution to total revenue surpassing 10% for the first time, becoming a key revenue driver. Gross margin rose to 63.1%, up 8.7 percentage points Y-o-Y. The rapid rise of neology stems from our precise capture of market opportunities and long-term business accumulation. For high-net-worth clients, functional medicine and gynecological anti-aging represent latent essence -- latent essential needs. In the first half, revenue from the functional medicine segment grew 122%. The energy drops product series sold strongly with liver metabolism detox and NAD+ Elite energy products, highly popular among clients due to their strong alignment with subhealth characteristics. Additionally, the new biological age management customized solution improves the customized [indiscernible] ecology and the metabolic function, further enhancing our portfolio. The women's specialty care centers are medical institutions dedicated to professional anti-aging and wellness. In the first half of 2025, revenue from these centers grew 173%, making them one of the most important businesses within the subhealth segment. In terms of capacity building, we continue to deepen integration of industry academia and research, establishing partnerships with medical partners. In August, we established a designated clinical training and exchange center for gynecology and a benchmark training base for the research participation with upstream partners promoting the sustainable development of female anti-aging industry. In March this year, Beauty Farm officially launched the capital market value enhancement plan, advancing growth through 3 key initiatives: first, establishing a long-term shareholder return mechanism by committing to distribute no less than 50% of annual net profit attributable to shareholders as dividend over the next 3, 4 fiscal years; second, optimizing the shareholder structure by introducing long-term strategic investors to build a healthy shareholder ecosystem; third, strengthening the alignment of management and shareholder interest through equity incentive programs to drive value co-creation and sustainable development. The plan has delivered interim results. On August 18, the company announced that CPE had completed the transfer of 51.329 million shares, existing -- exiting -- formally exiting as a major shareholder. Meanwhile, the 2 major healthcare industry investors and strategic partners introduced have appointed directors for upgrading the shareholder structure towards greater professionalism and diversification. Market response to our strategy has been positive with the company's market capitalization rising 15% from the beginning of this year to the end of August, a clear testament to the capital market strong recognition of our value enhancement trajectory. Finally, back to the essence of demand, [indiscernible] taught us that the highest human need is self-actualization. Today's women have long transcended superficial pursuits of beauty and health. This growth meaning and becoming the best version of themselves. For 32 years, we've embedded the mission of supporting self-actualization into our brand DNA, standing as a companion in every journey of women's self-discovery and empowerment. Organically, we will strengthen the advantages of our dual beauty-dual wellness business model, expand our core business brand metrics horizontally and deepen medical business penetration vertically to drive steady revenue growth. In terms of geographic expansion, we will continue to capture market share in high-tier cities and solidify our presence in core urban centers. Externally, we will replicate our acquisition and integration experience of Naturade, further pursue industry consolidation. On the digital front, we will leverage our data capabilities to focus on AI-driven innovation in the beauty and health sectors. With these initiatives, coupled with capital market value enhancement plan, I'm confident that we will continue to unlock long-term value, create a sustainable win-win future for customers, shareholders and partners alike. This concludes my presentation. Now please welcome Ms. Zhou, Min, our Chief Financial Officer, to present our financial performance.

Dear investors and analysts, I'm Zhou, Min, CFO of Beauty Farm. I'm pleased to present our financial performance for the first half of 2025. Despite macroeconomic pressures, we delivered record high revenue and profit. This achievement reflects our unwavering execution of the dual engine strategy of organic growth plus external acquisitions, combined with initiatives to enhance efficiency and quality driving profitability to new heights. In the first half, we recorded revenue of RMB 1.459 billion, up 28.2% Y-o-Y, significantly outperforming industry averages and demonstrating the vitality of our business model. Breaking down our revenue structure, all 3 business segments displayed distinctive yet robust growth trajectories. First, beauty and wellness services generated revenue of RMB 807 million, up 29.6% Y-o-Y. Of this, direct store revenue reached RMB 739 million, up 31%, driven by same-store sales growth and the positive integration of the Naturade brand. Franchise and other revenue was RMB 67 million, up 16.2% primarily due to the inclusion of Naturade franchise stores post-acquisition. Second, medical aesthetic services contributed RMB 499 million in revenue, up 13% year-on-year, supported by rapid growth in customer volume and membership, driven by our dual engine organic plus acquisition strategy. Third, subhealth medical services delivered revenue of RMB 154 million, a remarkable 107.8% increase, making it our fastest-growing segment. It was held by member base expansion, both organic and acquisitive as well as an enriched product portfolio that increased cross-selling from beauty and wellness into subhealth medical services, boosting penetration and per customer spending. While achieving faster growth, we also maintained a strong focus on profitability. In the first half, we generated a gross profit of RMB 720 million, up 34.7% Y-o-Y with gross margin improving by 2.3 percentage points to 49.3%. This was primarily driven by, first, direct beauty and wellness services, achieving a gross margin of 40.7%, up 1.9 percentage points, supported by procurement scale benefit for revenue expansion and higher margin contribution of Naturade. Second, medical aesthetic services gross margin rising to 56.9% from 55.1% in the first half of 2024, up 1.7 percentage points as business expansion enhanced our procurement bargaining power. Third, subhealth medical services revenue surged 107.8%, and fixed costs were diluted by scale effect, resulting in gross margin, jumping from 54.4% in the first half of 2024 to 63.1% in 2025, an increase of 8.7 percentage points. At the bottom line, the group delivered a net profit of RMB 171 million, a record high, representing a 35.5% year-on-year increase. Adjusted net profit reached RMB 191 million, up 37.8%. Our adjusted net margin climbed to 13.1%, marking an all-time high. Our efficiency initiatives, the operational efficiency initiatives, we implemented at the beginning of the year, have yielded great results. First, supply chain, enhanced procurement bargaining power driven by revenue expansion and improved inventory turnover enabled by digital capabilities. Second, improved employee productivity, supported by the full rollout of our skin analyzers earlier this year, enabling precise beauty treatment planning for clients. Third, we leveraged stronger brand recognition to gain support from strategic property partners, reducing rental costs and improving store efficiency. Now, let's look at our robust cash flow. Driven by the strong cash generating ability of our model, operating cash flow in the first half this year surged to RMB 410 million, up 84%, demonstrating the strength of our model. As of June 30 this year, even after settling the consideration for the Naturade acquisition, our cash reserves remained at a strong RMB 2.0 billion, up 27% Y-o-Y. This solid cash position and robust cash generation provides a strong buffer for both organic and external growth and also enables us to deliver tangible returns to shareholders. In March, we formally announced the establishment of a long-term shareholder return mechanism, committing to distribute no less than 50% of annual net profit, attributable to shareholders as cash dividends over the next 3, 4 fiscal years. For the first half, we declared a dividend of HKD 0.52 per share for fiscal year 2024 to be distributed to shareholders in December -- in September. Dear investors, in the first half of 2025 with revenue growth of 28%, profit growth of 38% and an 84% increase in cash flow, we've once again proven the resilience of our business model and effectiveness of our organic growth plus external acquisition dual engine growth strategy. Looking ahead, we will remain firmly committed to executing our growth strategy, focusing on driving both scale and profitability, while seizing industry opportunities to ensure the group's long-term sustainable development. This concludes my presentation. Thank you again for your attention. We will now move to the Q&A session and look forward to engaging with you further. Thank you very much.

[Operator Instructions] Now, I will give the floor to 9282.

I am Zhuonan Xu from CICC. Congratulations on your great performance in the first half of this year. We understand that against the industry back growth, as a leader, you can achieve this remarkable performance. It's no mean feat. So I'd like to ask you from an industry perspective, how do you view these beauty and wellness sector? Do you believe there is still growth potential? The second question is about the membership. So we can see in the first half of this year, our membership growth and engagement were particularly impressive, for example, the active member count, purchase frequency and et cetera. So could you break down the key drivers behind this performance? So these 2 questions.

Thank you for your question. You asked 2 questions. One is about the industry, and the other is about our membership growth. So I will try to answer these 2 questions. separately. So first, for Beauty Farm, the first half of this year for beauty and wellness sector, we achieved a faster growth with great resilience. So we are already #1 of its kind in China. So for the whole industry, we can look at it this way. So actually, the beauty and wellness sector is a very large sector, over RMB 1 trillion value in total. So in China, Chinese market is also leading the whole world in terms of the beauty and wellness sector. Also, we witnessed some changes in the sector in China, as there are more and more population in the urban cities, especially the concentration in the larger cities, in these mega cities. So as a result, there is a cluster of cities, and there is the concentration of wealth accordingly as well. So for many families with over RMB 10 million family wealth, so 30% to 40% of these families are concentrated in Beijing, Shanghai, Guangzhou, Shenzhen, these 4 first-tier cities. So there is a very clear trend of the population concentration. So for the beauty and wellness sector, they echo the population trajectory as a result. So there is also the concentration of the leading companies as well. So for these industries, we can see the structural changes as there is more and more population in the top-tier cities, the growth of the beauty and wellness sector in these cities is also going to be faster. And also for leading companies, there is the stealth effect, there is the stealth economy, and also, there are more digital strengths, and there are more professional medical services and professional medical capabilities. Their growth is usually higher than the market average. So there are structural changes and also structural advantages, as I mentioned. So that is what we have observed from the industry perspective and also from our own performance. To answer your second question, about our membership growth, while we keep our growth, our active member count is growing 46% accordingly. And also the purchase is very strong. we can see the membership number, so our membership number is increasing steadily. To give you some figures, in the first half, our active members spent, also they visited our stores 5.7x, and their average spending is RMB 6,200. So we have a very steady loyalty, and their per time purchase is around RMB 1,086. So it has shown their deep loyalty in our service and our brand. And also, you can see the [ Talise Spa ] average spend has increased to RMB 1,600, and CellCare average spend is around RMB 800. So they all showed the strong spending power and purchase power of our users. So let's look at their top-up money. So this is an important indicator to value the loyalty. So in total, the top-up money reached RMB 1.5 billion, up 36%. So it's faster than our revenue growth as well. So despite the macroeconomic stress and pressure, we delivered very resilient growth. So it has shown the long-term trust in our brand and their confidence in our brand services. And now let's look at our repurchase rate, we can see based on our accumulated customer base, our old customers contribute 91% to our revenue. So the members, especially the active members are the support of our revenue. So in terms of the total revenue, profit, the top-up money and the repurchase rate, you can see the faster growth of our membership and their strong power. And now, we can break down the users. So the users who spent over RMB 100,000 and for the medium customer base around RMB 10,000 to RMB 100,000 and those below RMB 10,000, you can see from the structure that we are improving our portfolio, and we provide new customer services, and we've been increasing our purchase times and also their loyalty. So for the mid level, so their spending increased by 2.5%. So the customer base increased by 4%. So for the dual beauty services, we provide them with some packages. Targetedly, it has increased the loyalty of this customer -- this mid-level customer. And for the low level, their consumption increased by 12%. So that shows the expansion of our customer base. With our online marketing, it has shown the online marketing capabilities of Beauty Farm. And the increase -- the net increase reached 11%, which shows that we are increasing our customer base. So from the total to the breakdown, you can see the purchasing power has been very strong and solid, and there are several drivers behind. First, our acquisition capabilities are leading in the sector. We have strong digital capabilities and 4 channel acquisition capacity. So in terms of these indicators, we are at a leading role. It has guaranteed that we have a very stable customer increase and increasing our total members. So we have around 40% in all these indicators. Furthermore, to satisfy the needs of customers, we really pay attention to the exploration of the channels and our services. So for the facial products, we focus on the technologies. And functional technologies, we provide some leading solutions. And also, we make full use of our advantages, the dual beauty strategy, the basic beauty services and the aesthetic medical services so that we provide them with a more comprehensive solution. In addition for technology wellness and for the healthcare services, we've been making steady progress. For example, we understand the quality characteristics of our customers, so we can provide them with more targeted recommendations. Sleep, pressure and gynecological features, so on and so forth, we can better optimize our product portfolio. We can enrich our portfolio. So we are increasing our development in this regard as well. We've been making some innovative breakthroughs in this regard as well to satisfy their needs and increase the loyalty of our customers. So that's my answer to your questions. Thank you.

Congrats. We wish Beauty Farm can grow further and enjoy the bright future.

Now the second question.

Management team from Beauty Farm, I'm Sun, Danyang from Huatai. Again, congratulations on your remarkable performance. I have a question. Mr. Lian just mentioned that revenue in Tier 1 cities grew by 50% in the first half of this year, which is very encouraging. Could you share our specific plans for city-level expansion going forward? For example, will our strategies differ across Tier 1 -- new Tier 1 and other cities? What will be the main focus areas?

So just now I mentioned we have noticed this important change in this industry, the industry structural change. So there is a shift and concentration to the first tier and -- the first-tier cities. Yes, we try to align with the market trends. We focus on the Tier 1 cities, and that will strengthen our advantages in these core cities. So that's the strategy of our layout. And we strengthen our internal growth and external integration. So this is a dual growth strategy. In this Tier 1 and new Tier 1 cities, we use these methods to improve our market penetration rate to capture a larger market share and to enjoy a higher profitability, specifically for the ultra Tier 1 cities, Beijing, Shanghai, Guangzhou and Shenzhen. So these are our core cities. These are our strategic cities. So we can see clearly that the number of the directly operated stores in these cities are 157, around 57% of the total directly operated stores. So they contribute RMB 890 million to our revenue, up 50%, 62% of our total revenue. So from these figures, it's clearly shown that in these cities, we have dense stores, and we have high efficiency with our mature business models. These cities are key drivers to our growth. In these cities, we can open more stores in a dense way. So it can -- we can satisfy, and we can acquire more high-net-worth customers. And our subhealth and medical -- aesthetic medical service customers might be more concentrated. So the profitability in these first-tier cities is actually leading our company and also in the whole industry, Beijing, Guangzhou, Shenzhen, so they can reach 25% in our net profitability. So our business models have shown strong profitability in these Tier 1 cities, in Beijing, Guangzhou, Shenzhen and Shanghai. So we have been adjusting our strategies for Beijing, so it's a very mature city. So in Beijing, we adjusted our operational strategies with a more refined way. So we've been changing our structure as well. So our revenue increased to 9.8% in the first half. This demonstrated that there is room for the increase in our efficiency in the management and operation. So it has been a model for us to further increase our efficiency. Also, with acquisition and investment of the Naturade, our stores have been increasing as well. So we increased our market share in a very fast way. It has increased our medical services, subhealth services and sales. So in these core cities, we've been strengthening our advantages. So we have 8 cities that have a revenue over RMB 100 million. We are further going to increase them from RMB 100 million to RMB 200 million or to increase the revenue of other cities to RMB 100 million soon. So we've had this replicable model in Xi'an. So from 2020, the revenue was around RMB 10 million, but now it has been increased to RMB 100 million. So the growth of the cities cannot be achieved without our internal growth and external expansion. So we do some acquisition of good assets in Xi'an through some franchise stores and the local brand like Lotus. So by acquisition, we've increased our stores and membership numbers. And also for the landmark cycle, SKP and MixC, these shopping malls. We've entered these major shopping malls in Xi'an in landmark shopping malls. So in 2022, we also laid out the medical services there as well. Medical services, wellness services and aesthetic services have been combined and further improved. As a result, in 5 years, we increased our revenue from RMB 10 million to RMB 100 million. And our profitability before tax reached 31%. So the high profitability has boosted our confidence. And for Chengdu, we also achieved the acquisition. So for the first half, Chengdu delivered a 35% Y-o-Y increase, over RMB 50 million, for the first half of the year. So it's very close to the RMB 100 million sales for the whole year. So it has been increasing its scale even further. So for Chengdu, we've achieved our acquisition in 2024. We achieved the acquisition of Youlan, expanding our stores there. And also, we acquired a clinic there in Chengdu. So it's a very large comprehensive aesthetic service and wellness center. And also in the best stores, shopping malls like IFS, [indiscernible]. So these large shopping malls in Chengdu, we have leveraged the acquisition and investment in building our business models, increasing our business reputation. So we need to further seize the opportunities of the concentration of the population in these large cities. So that's my answer. Thank you for your question.

Thank you, Mr. Lian, for detailed introduction. We look forward to better news -- even better news for the second half of the year.

And then the third question.

I'm [indiscernible] from CITIC Securities. So your letter to shareholders on the company's second listing anniversary, you mentioned a RMB 10 billion market cap goal. As we are approaching this target, could you break down the path to achieving it? And what are the company's long-term plans beyond this RMB 10 billion milestone?

So to answer your question this way, at the time, we mentioned the $10 billion market cap goal, we tried our best to reach this goal. With our dual beauty plus dual wellness business model, internal growth plus external expansion, dual strategy, we work on this goal very seriously. In the short period of time, it's going to be our goal. For the years to come, it's going to be an important goal for our company. So we are trying to achieve this goal. So for the first half of the year, our price was lower than RMB 10, but this year, it has been increased to RMB 30. So it has been increasing by 233% -- 230% this year. So we will continue to serve as a pilot and the leader in the industry. We are going to be the pacesetter of the industry continuously. So as a whole, we have 2 long-term plans. So first for the first-tier cities and core cities, Beijing, Shanghai, Shenzhen, Guangzhou and Hangzhou for these top-tier cities, we will need to deepen our strength. For these markets, we can further increase our market share and penetration rate. So we mentioned the whole industry market cap can be over RMB 1 trillion. So right now, there are some structural changes. We need to seize these opportunities and make full use of our accumulated business bases and commercial capabilities as well as profitability capabilities. So we are going to further increase our market share. So there is great room for improvement. We believe we can increase our revenue while increasing our profitability in these cities. Furthermore, in China, there are some other new Tier 1 cities, like we mentioned Xi'an, Chengdu, Wuhan and Chongqing and a lot of other important cities. So we already have our directly operated stores there. For these cities, our penetration rate is not that high in the top-tier cities. So we need to double up our services and investment as well. So in these cities, we hope we can replicate the successful experience of Xi'an and Chengdu. With our business model, we want to further increase the number of our stores, making it denser. And we are going to target the customer base more accurately to improve our internal growth and external expansion. We can further increase the city's revenue from RMB 100 million to RMB 200 million or from less than RMB 100 million to RMB 100 million. So we think with these 2 plans combined, our penetration rate will show a very clear growth. So as you mentioned, RMB 10 billion market cap, it's a goal that we must achieve. So we have a step-by-step development plan accordingly as well. In addition -- so in addition to the market share and the penetration rate, we think we have another important goal that is the increase in our efficiency. While improving our revenue, how can we further make our operation more efficient. So that's an important topic, an important direction for management in the near future. In the first half this year, we've achieved this goal. We improved our revenue, and we make our operation even more efficient. It is thanks in part to our business model, we focus on our customer base, and we found new coordinated effect of our resources. And in the future, we are going to have faster efficiency, and we're going to have better digital capabilities, so for the brand -- for our brand, we are going to increase our operational efficiency in every city across all cities. So while improving our revenue, we want to deliver a better customer value. We want to further improve our operational efficiency, increasing our value for the long term.

And next.

I am Sun Danyang from Huatai. Distinguished management team, distinguished members, after hearing your presentation, I'd like to ask about acquisition. So I'd like to ask Mr. Lian, so could you share an update on the Naturade acquisition progress, particularly in terms of the business synergies, resource allocation and the results achieved so far after this period of time? Additionally, we are curious and we'd like to know, what are our future plans regarding M&A strategy? I think this is a question concerning many investors.

Thank you. Thank you for your question. So for Naturade project, as you see, for the first half this year, it delivered a great result beyond our expectation. So its revenue reached RMB 277 million, and its profitability increased from 6% before acquisition to around 10% post acquisition. So the acquisition and integration confidence of our group has been further increased. So the per store revenue for Naturade increased from RMB 5.8 million before to RMB 7.2 million post acquisition. So operational efficiency, revenue, profitability have all been increasing. So we are doing some review as well. We are trying to reflect on our performance. I think there are several drivers behind. First, we continue to make use of the core advantages of Naturade, that is its intelligent wellness. So Naturade has its unique characteristics. It focuses on wellness services. Wellness -- intelligent wellness, it is its key business. So in May last year -- May this year, Sullivan once again mentioned that Naturade is the #1 intelligent wellness brand in China. So it uses modern equipment with the traditional medical philosophies of China. So it uses examination first and then treatment, health care, wellness care and then examination. So this is a form of intelligent wellness. So for traditional wellness institutions, it is usually based on human experience. So usually, it's based on the subjective feeling of the customers, but we have changed it with digital. And with digital technologies, we've changed the way that we deliver the wellness services. So that's the core strategy of Naturade. So we are going to increase our R&D in this regard. In May, we launched the topology product, and it has delivered really great results. It accounted for 10% of our revenue. So this intelligent wellness new project was sold strongly after its launch, and it has demonstrated its great room for improvement and its great potential. Once more, we have been redesigning and upgrading the stores for intelligent wellness. The new stores have separate and independent examination rooms. So we have their body physique test and the X-ray test and also the infrared test, so we can combine the examination results with the experience of the experts. We can form this intelligent examination advantage. Also, we are developing our AI detection capabilities as well. So with accumulated data, we can further offer solutions suitable to our customers, and we can follow up, provide real-time support. For intelligent wellness, we have full confidence. We believe that it's going to promote faster growth of our stores. In addition, we have our own medical services. In the first half, it achieved RMB 105 million. So we can see our Naturade customers pay great attention to the subhealth services. So the subhealth services accounted for 13.6% of Naturade. So it's higher than this year of the total group. Also, the Naturade subhealth group spent RMB 19,000. Also, higher than the group's average. The Naturade is focused on the wellness and the medical services. So in addition to the clinic adjustment, we've been expanding the stores as well. So on August 1 in Guangzhou, we launched a comprehensive medical service store. It's over 5,000 square meters. It's the largest store that we have so far, and it has been warmly welcomed by our customers. In just a few days, we increased our revenue to RMB 20 million. And also, we have new Naturade stores that are to be launched very soon. And that's the business side. And then, for our operational side, we've been working hard. Our profitability increased from 6.5% to 10.4%. Our net profitability has been closer to our whole group. So it is thanks in part to our organizational changes. Furthermore, our per store consumption has increased as well from RMB 5.8 million per store to RMB 7.2 million for Naturade. And, of course, there is optimization of the rent of the stores. In the shopping malls, our advantage has been even more clear. Our rent has been going down in proportion of our total revenue. And we are increasing our digital capabilities and our O&M efficiency. So we can replicating many functions while increasing our -- while reducing our cost and improving our operational efficiency. So all of these strengths have improved the performance of Naturade. The Naturade is our first large-scale acquisition project. So far, this way, we can see that we've delivered a very great performance. It has improved our confidence, and we've accumulated great experience. So we're going to continue our path to promote our internal growth and external expansion. We're going to integrate good quality assets in this sector and then to find the upstream integration opportunities. So these are our thoughts on the acquisition and investment for the future. So in this way, we can rapidly increase our market share and efficiency, achieving growth in both revenue and profitability to deliver a better commercial value to work on this goal and mission. That's all. Thank you.

Due to time limits, this ends our Q&A session. Thank you very much for attending the meeting. This is the end of the meeting. Wish you a good day. Thank you. Bye-bye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]