Source: time Weekly author: Han Liming

Barley hair transplant may become the "second stock of Hong Kong stock hair transplant".

On the evening of June 29, the official website of the HKEx disclosed the listing application of Barley hair transplant Medical (Shenzhen) Group Co., Ltd. (hereinafter referred to as "Barley hair transplant"). Prior to this, hair transplant industry leader Yonghe Medical (02279.HK) entered the Hong Kong stock market in December 2021.

According to Frost Sullivan's research data, China's hair medical service market will be 18.4 billion yuan in 2020, which is expected to grow at a compound annual growth rate of 22.3% and will reach 138.1 billion yuan by 2030. Among them, the size of the hair transplant medical market is about 13.4 billion yuan in 2020, which is expected to develop at a compound annual growth rate of 18.9%, and will reach 75.6 billion yuan by 2030.

At present, the supply side of the hair transplant market is relatively scattered. Ping an Securities Research News said that with the rise of chain organizations, head companies focus on brand marketing advertising to improve brand awareness, industry concentration will increase, head companies will be the first to benefit.

Some people in the industry introduced to time Weekly that the current homogenization of hair transplant institutions is serious. High-density advertising and step-by-step consumption induction are common marketing means for hair transplant institutions, which also lead to frequent problems such as false propaganda and unprofessional institutions.

The gross profit margin exceeded 70% and the marketing expenses exceeded 500 million last year.

The anxiety about hair loss among young people is driving the rapid growth of the hair transplant market.

According to the cautionary report, the number of hair loss patients in China has increased rapidly from 195 million in 2016 to 267 million in 2021, and is expected to further reach 343 million in 2026. The trend of hair loss is obvious at a younger age, with 60% of people showing signs of hair loss at the age of 25, and 84% of the population before the age of 30.

Barley hair transplant was founded in 2015, and its predecessor can be traced back to Hangzhou Meizhiyuan Medical Technology Co., Ltd., which was acquired by company founder Li Xingdong in 2010 (renamed Hangzhou Kefayuan Medical Technology Co., Ltd., hereinafter referred to as "Kefa Source"). In 2019, the brand of Kefayuan was upgraded to barley.

In the purpose of raising funds for listing in Hong Kong, expanding the operating network and upgrading service organizations are in the first place. In addition, barley hair transplant will also raise funds for research and development, promote the digital transformation of medical services, identify strategic investments and acquisitions, for working capital and general corporate purposes.

According to the prospectus, the marketing expenses of barley hair transplants have far exceeded the R & D expenses over the years. From 2019 to 2021, the expenditure on marketing and distribution is 500 million yuan, 399 million yuan and 520 million yuan respectively, while the R & D expenditure is 6.5 million yuan, 4.6 million yuan and 4.8 million yuan in the same period. The marketing expenses are 77 times, 87 times and 108 times of the R & D expenses, respectively.

A reporter from time Weekly noted that in 2020, the top five suppliers of barley hair transplants were all advertising companies, with a total purchase amount of 216 million yuan. In 2021, the advertising company is still the top four suppliers of barley hair transplant, with a total purchase amount of 233 million yuan.

The main business of barley hair transplant includes surgical hair transplant, non-operative hair fixation and hair care, products and services. From 2019 to 2021, the total income of the company was 747 million yuan, 764 million yuan and 1.021 billion yuan respectively, and the net profit was-15.01 million yuan, 69.56 million yuan and 66.12 million yuan respectively. There will be a situation of increasing income without increasing profits in 2021.

As for the net loss in 2019, barley implanted hair said bluntly in the prospectus that sales and distribution expenses reached 500.7 million yuan, accounting for 67% of the total revenue in 2019. This part of the expenditure is mainly used to promote services and improve brand awareness after upgrading the Kefa source brand to barley in 2019.

Between 2019 and 2021, the gross profit rate of barley hair planting declined, from 79.8% to 70.9%. In response to the decline in data, barley hair transplant explained that it was mainly due to the start of the operation of the maintenance centre in June 2020, where the gross profit margin of the hair fixation and maintenance services provided by the maintenance centre was usually lower than that of the hair transplant service, but the service shows great potential as a source of recurrent income.

At present, surgical hair transplant is still the main source of revenue from barley hair transplant. Revenue accounted for more than 90 per cent in 2019 and 2020, falling to 79 per cent in 2021. The share of income from non-surgical hair fixation and maintenance rose from 4.3% in 2019 to 21% in 2021, while the share of services increased to 14.4% in 2021.

The business of barley hair transplant mainly relies on offline institutions. Barley hair transplant operates 33 medical institutions in 21 cities in China, while another four are under construction, according to the prospectus. In January 2022, the company obtained a license for the first hair diagnosis and treatment service Internet hospital and is preparing to open.

The competition on the track is fierce

At present, the most commonly used treatments for hair loss include drug therapy, medical treatment and hair transplant. As one of the important methods to improve hair loss, hair transplant has the advantages of good surgical safety, high survival rate of hair follicles and normal growth of hair after implantation.

By the end of 2021, there were more than 100 hair diagnosis and treatment service providers in China. It is mainly composed of independent private hair transplant institutions, chain hair transplant institutions, hair transplant departments of beauty agencies and hair transplant departments of public hospitals. According to Ping an Securities Research report, at present, independent private hair transplant institutions have the highest market share, reaching 45.6%, followed by chain hair transplant institutions with a market share of 23.9%.

"at present, there are many participants in the hair transplant market, but there are only a handful of high-quality supplies." Jin Qiu, a business analyst at Societe Generale Securities, once explained to time: "the supply of domestic medical resources has been tight for a long time, and public hospitals are less willing to carry out a large number of hair transplant operations. At the same time, with the promotion of market education and the improvement of consumers' awareness of the cost of surgical trial and error, the market will gradually move closer to head hair transplants. "

By the end of 2021, Yonghe Medical has 54 medical institutions in 53 cities across the country. According to its first annual report after landing in the Hong Kong stock market, during the reporting period, Yonghe Medical achieved revenue of 2.169 billion yuan, an increase of 32.37% over the same period last year, and adjusted net profit of 181 million yuan, an increase of 32.8% over the same period last year.

Bilian Sheng Zhifa Hospital, a subsidiary of Biliansheng Group, was established in 2005. Public information shows that Biliansheng has adopted the direct operation mode of "one city, one store" and has set up direct operation organizations in 38 cities across the country. At the end of March 2022, Shi Xiaojiong, CEO of Biliansheng, said that the company's listing financing plan was progressing steadily.

"as the homogenization of institutions becomes more and more serious, the competition for customers and market share will become more intense." The chairman of a hair planting enterprise told time Weekly. High-density advertising and step-by-step consumption induction are still common marketing methods for hair transplant institutions, which also leads to false propaganda, unprofessional hair transplant institutions and other problems.

With "hair transplant" as the key word, time Weekly found more than 90 complaints on the black cat complaint platform for different reasons, but most of them focused on "deception", "exaggeration of false propaganda", "the effect of the operation was not as good as expected" and so on. In April 2022, barley hair transplants and other hair transplant institutions were also "named" by the media, pointing out that hair transplant advertisements were "deceiving people".

On November 2, 2021, the General Administration of Market Supervision issued the guidelines for the Law Enforcement of Medical Beauty Advertising, defining the key points of the supervision of medical beauty advertisements, severely cracking down on all kinds of false and illegal advertisements of medical beauty, and standardizing the medical beauty advertising market.

Barley hair transplant made it clear in the prospectus that there is no guarantee that the relevant departments will not implement stricter laws, rules, regulations or industry standards for the provision of hair diagnosis and treatment services. Even if you are able to comply with these new laws, rules, regulations or industry standards and review them regularly, operating costs may increase significantly.