LEMO SERVICES Reports Revenue Growth but Profit Decline in H1; Network Expansion Drives Up Costs

On August 18, LEMO SERVICES released its interim results for 2026. In the first half of the year, the company's revenue reached RMB 443 million, a year-on-year increase of 2.31%; gross profit was RMB 142 million, a year-on-year decrease of 1.24%; profit attributable to shareholders of the company amounted to RMB 36.75 million, a year-on-year decrease of 3.21%; and adjusted net profit was RMB 38.89 million, a year-on-year decrease of 17.55%.

While revenue continued to grow, profits declined, a trend first reflected in the gross profit margin.

Based on the rounded figures disclosed in the announcement, the gross profit margin for the first half of the year was approximately 32.1%, compared to approximately 33.2% in the same period last year. The cost of sales was approximately RMB 301 million, representing a year-on-year increase of about 4%, which outpaced revenue growth. The company stated that the main reasons were rising costs associated with site locations and increased research and development expenses.

LEMO SERVICES provides machine massage services in commercial complexes, cinemas, and transportation hubs through its "LEMO Bar" brand, operating under both direct-operated and partner models.

Under the direct-operated model, the company is responsible for outlet operations, bearing costs such as site rentals, equipment depreciation, and maintenance. Under the partner model, local partners handle operations while the company provides equipment and support. Whether new outlets can generate corresponding orders directly impacts profit performance.

From the existing cost structure, outlet expenses are the largest expenditure. In 2025, outlet-related expenses accounted for 65.23% of the cost of sales, while depreciation and amortization accounted for 23.94%. During the same period, the number of service outlets increased to 49,877, and the number of massage devices rose to 539,443. Although revenue grew by 13.63%, the gross profit margin dropped from 36.07% to 33.67%. The continued decline in gross profit margin in the first half of this year indicates that expansion costs have not yet been fully absorbed.

R&D investment is another influencing factor. Related investments involve not only massage equipment but also IoT systems and operational platforms.

In 2025, the company's R&D expenses were RMB 23.38 million, a year-on-year increase of 8.76%, primarily due to an increase in projects as well as the number and compensation of R&D personnel. Whether R&D efforts can translate into improved equipment utilization and operational efficiency remains to be verified by subsequent data.

The decline in adjusted net profit was significantly larger than that of net profit attributable to shareholders, which requires understanding based on the calculation methodology. According to the company's definition, adjusted net profit adds back items such as share-based payments and listing expenses.

The same period last year was during the pre-listing preparation phase. Judging from the difference between the two profit figures, the adjustment amount was higher in the same period last year, which is an important background for the different rates of decline. Based on estimated rounded figures, the net profit margin for the first half of the year was approximately 8.3%, and the adjusted net profit margin was approximately 8.8%, both lower than the same period last year.

Data from Frost & Sullivan, cited in the prospectus, shows that LEMO SERVICES held a 42.9% share of China's machine massage service market in 2024 in terms of transaction value. However, after scaling up, the quality of growth depends more on scenario selection and single-point efficiency.

The company has proposed optimizing high-value scenarios and has piloted operations in Thailand, Indonesia, and Hong Kong, China. As of the end of 2025, its overseas business remained in the early stages.

Judging from the revenue data, there was no contraction in the first half of the year, but the slow growth was insufficient to cover the incremental costs. In the second half of the year, the key observations will be whether the company can improve its outlet structure and equipment efficiency, and stabilize its gross profit margin while continuing R&D investment.