Huaxi Bio: No Longer "King"
Author: Pan Yan, Produced by: Global Finance Commentary "When the tide goes out, you know who's swimming naked."
As biotech IPOs are frequently rejected and the commercialization of medical devices encounters obstacles, the medical aesthetics industry, with its high growth, high gross margin, and centralized procurement immunity, has become a "safe haven" for many investors.
Unfortunately, even the giants in the medical aesthetics industry are struggling now.
With increasing industry regulation and the rise of emerging forces, the A-share "Three Musketeers of Medical Aesthetics," who once dominated with the hyaluronic acid concept, have collectively lost momentum, bidding farewell to the era of high growth.
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Among them, Huaxi Biotech (688363.
SH), with the largest revenue scale, has shown the most significant deceleration, falling into a dilemma of declining revenue and profits.
In the first half of 2024, Huaxi Biotech's operating income decreased by 8.61% year-on-year to 28.11 billion yuan, and its net profit attributable to the parent company decreased by 19.51% year-on-year to 3.41 billion yuan.
As early as 2023, the performance dilemma of Huaxi Biotech had already shown signs, with a year-on-year decrease of 4.45% in operating income to 60.76 billion yuan, and a year-on-year decrease of 38.97% in net profit attributable to the parent company to 5.93 billion yuan, also the first time since its listing in 2019 that both annual revenue and net profit have declined.
The other two giants, Aesthetic Customer and Haohai Bioscience, can still maintain a double increase in revenue and profit.
In the first half of 2024, Aesthetic Customer's operating income increased by 13.53% year-on-year to 16.57 billion yuan, and its net profit attributable to the parent company increased by 16.35% year-on-year to 11.21 billion yuan; at the same time, Haohai Bioscience's revenue increased by 7.00% year-on-year to 13.97 billion yuan, and its net profit attributable to the parent company increased by 14.64% year-on-year to 2.35 billion yuan.
Even with growth, the growth rate has slowed down compared to the previous years.
From 2020 to 2023, the highest annual compound growth rate of Aesthetic Customer was up to 59.35%, and that of Haohai Bioscience was 25.83%.
Huaxi Biotech, at its peak in 2021, once achieved a revenue growth rate of over 80%.
In the secondary market, since 2021, when the strict regulation intensified, multiple departments have jointly taken action to comprehensively rectify and standardize the medical aesthetics industry, the stock prices of the "Three Musketeers" have also been bleak.
Taking Huaxi Biotech as an example, after the stock price reached a historical high of 307 yuan in July 2021, it began to plummet.
As of September 6, 2024, Huaxi Biotech closed at 48.72 yuan, with a total market value of 23.5 billion yuan, and the stock price has fallen by nearly 80% from its historical high, with a market value evaporation of over 120 billion yuan.
The stock price trends of Aesthetic Customer and Haohai Bioscience are similar, both falling by about 70% from their respective historical highs.
Looking at the story of the "Three Musketeers," the myth bubble was punctured after a very high valuation, but the current valuation may still be inflated.
As of September 6, 2024, the price-to-earnings ratios of Huaxi Biotech, Aesthetic Customer, and Haohai Bioscience were 46.0 times, 20.5 times, and 31.3 times, respectively.
In comparison, on the same day, Kweichow Moutai, known as "liquid gold," had a price-to-earnings ratio of 21.8 times.
The rise and fall of the three giants in medical aesthetics are closely related to the overall market environment.
According to the "2023 Annual Insight Report on China's Medical Aesthetics Industry" released by Allergan Aesthetics and Deloitte Consulting, from 2021 to 2023, the CAGR of China's medical aesthetics market was 15%-20%, and it is expected to be 10%-15% from 2024 to 2027, with a slowdown in growth rate.
On the other hand, the current performance deceleration can also be attributed to the fact that its own advantage products have entered the mature stage of the market, and the growth momentum has weakened.
This is particularly prominent in Huaxi Biotech.
Looking at the timeline, Huaxi Biotech mainly focused on the supply of hyaluronic acid raw materials in the B-end market at the beginning of its development.
It was not until 2017 that Huaxi Biotech adjusted its business structure and began to move from the B-end raw material market to the C-end consumer market, expanding into the hyaluronic acid application field mainly focused on functional skincare.
Looking at the revenue structure, the revenue proportion of Huaxi Biotech's functional skincare products increased from 11.63% in 2017 to 72.45% at its peak in 2022, becoming the growth engine.
However, since 2023, the core business that once led Huaxi Biotech onto the fast track has begun to become the main factor dragging down the company.
In the first half of 2024, Huaxi Biotech's revenue from functional skincare products decreased by 29.74% year-on-year to 13.81 billion yuan, and the revenue proportion has fallen to 49.29%.
The most typical event of the poor development of Huaxi Biotech's functional skincare business is the "failure of Qudi."
In 2018, in order to increase the profit margin, Huaxi Biotech launched the high-end skincare brand "Qudi" with hyaluronic acid, with prices ranging from 300 to 500 yuan.
Qudi lived up to expectations and showed strong growth capabilities, and in 2022 it became the second "billion-level" skincare brand in the Huaxi family after "Runbaiyan."
However, in 2023, the revenue of Huaxi Biotech's functional skincare segment plummeted, and all four major skincare brands declined.
Moreover, there were no performance data related to the four major skincare brands in the annual report.
According to the last disclosure in the semi-annual report of 2023, the revenue of the four major skincare brands all declined to varying degrees, with the revenue of Runbaiyan and Qudi, the two major billion-level products, decreasing by 2.04% and 10.10% year-on-year, respectively.
Regarding the continued downward trend of the functional skincare business, Huaxi Biotech attributed it to being "in the deep water area of management change" in the semi-annual report of 2024.
The company's main focus is on adjusting the team, sorting out internally, reviewing strategies, correcting actions, etc., and the short-term business results are inevitably affected.
This may be associated with the "resignation of senior management accusing Huaxi Biotech" incident in June 2024.
The senior executive was the former product operation director of Qudi and one of the founding team members, who frequently appeared in social media and live broadcasts, and had a certain fan base.
The occurrence of this incident also made the future development direction of the brand uncertain.
In fact, Huaxi Biotech had previously been involved in public opinion storms related to senior executives.
At the end of 2022, Huaxi Biotech's chairman, Zhao Yan, was accused of encroaching on shareholder rights and forcibly buying back employee stocks at low prices.
Subsequently, Cui Guangping, the co-founder and vice chairman of Huaxi Group, also claimed that "his dividends for many years have not been realized."
After the above "accusations," Huaxi Biotech did not respond publicly, and everything ended in vain, but all signs pointed to internal management issues at Huaxi Biotech.
Therefore, in the semi-annual report of 2024, Huaxi Biotech repeatedly mentioned the keyword "management change" and called 2024 the "year of change."
Recently, when investors asked about the progress and future plans of the company's functional skincare business segment change, Huaxi Biotech responded that since 2023, the company has actively implemented strategic adjustments, carried out brand planning adjustments and health inspections of its business, and the effects of the changes are gradually becoming apparent in various businesses, among which the functional skincare business has achieved significant results.
However, considering the nearly 30% decline in Huaxi Biotech's functional skincare business in the first half of the year, "significant results" seem a bit far-fetched.
At the same time, the "disposable" track that created high growth for Huaxi Biotech is now overcrowded, including brands such as Pechoin, Marubi, and Kefumei, Kelijin, which are backed by the listed company Juzi Biotech, have all launched disposable essences.
In the era of emerging new products, Huaxi Biotech's market share is continuously being eroded, but it still claims to be planning adjustments, and the deep meaning is self-evident.
The core issue of Huaxi Biotech is that it has many brands under its umbrella, but essentially it is still a raw material company centered around "hyaluronic acid +."
In the short term, it may be able to cater to the "ingredient party" to enjoy dividends, but in the long run, it is difficult to maintain the industry's giant ship to continue moving forward by relying solely on a single explosive ingredient.
A more obvious sign is that with the intensification of industry competition and the iteration of technology, the routine of driving high growth in the C-end market by marketing driven by "explosive ingredients" and "influencer guidance" has begun to fail.
In the first half of 2024, Huaxi Biotech's sales expense ratio remained above 40%, but revenue has declined significantly.
It can be seen that if Huaxi Biotech wants to stand tall again in the capital market, it still needs to create a larger imagination space, and "a biotech company supported by synthetic biology" is the new positioning that Huaxi Biotech has given itself.
Since 2018, Huaxi Biotech has begun to rely on synthetic biology technology, focusing on six major categories of biologically active substances such as functional sugars, proteins, peptides, amino acids, nucleotides, and natural active compounds, and actively laying out the research and development of new raw materials.
The financial report shows that after launching nine new biologically active raw materials in 2023, Huaxi Biotech launched another six new raw material products in the first half of 2024.
Obviously, Huaxi Biotech wants to expand more raw material component territories with synthetic biology technology.
In fact, this is not the first time Huaxi Biotech has tried and explored new raw materials.
As early as 2015, Huaxi Biotech entered the field of botulinum toxin by "joining hands" with the South Korean botulinum toxin research and development company Meditoxin, but it was ultimately aborted due to the explosion of Medytox.
In 2022, Huaxi Biotech officially entered the collagen industry by acquiring Yi'er Kang Biotech and announced that collagen would be regarded as the second major strategic biologically active substance after hyaluronic acid.
From the product side, Huaxi Biotech has launched skin care products with recombinant collagen.
In the first half of 2024, Huaxi Biotech has completed the registration of the main document of medical devices for "recombinant type III humanized collagen raw material main document."
It is interesting to note that Zhao Yan, the founder of Huaxi, once publicly "criticized" the collagen products on the market, stating that "collagen is just a concept in skin care products because it cannot be absorbed."
Regarding whether collagen can become a new growth curve for the company, Zhao Yan now says that "it can be cultivated as the second major strategic biologically active substance, but it needs to be discussed again to replace hyaluronic acid.
"Despite many doubts, they still rush into the race.
This contradictory psychology is also related to the development of the industry.
In recent years, as companies like Juzhi Bio and Jinbo Bio, which are involved in collagen, have entered the capital market and demonstrated strong growth and profitability, they inevitably put pressure on established hyaluronic acid companies like Huaxi Bio.
They don't want to help the collagen giants promote their efficacy, yet they want to get a share of the market.
Where in the world can such a good thing happen?
Therefore, whether Huaxi Bio can open up a new situation with collagen is uncertain.
This is also the main reason why Huaxi Bio is eager to transform towards synthetic biology technology and focus on cultivating new raw material components.
After all, the real moat is the technical barrier.
However, whether it's collagen raw materials or other self-developed new raw materials, they are all in the development stage.
To quickly find a second curve that can match hyaluronic acid, time is still needed.
And "time" is a huge unknown.