Incident: Jiangsu Wuzhong invests in Lilai Technology to lay out a “baby needle” of recycled water light: Jiangsu Wuzhong Aesthetics signed a strategic investment and cooperation agreement with Lilai Technology to obtain exclusive rights in Lilai Technology's injectable sodium hyaluronate polydeoxyribonucleotide (PDRN) complex solution product. Lilai Technology's PDRN solution has entered the clinical trial stage. It is relatively advanced in China, and it is expected to become the first batch of three PDRN device products to be marketed in China.

PDRN has rich overseas experience, helping overseas medical and aesthetic companies grow rapidly. PDRN, also known as “salmon needle,” is a functional water light product. It has the effects of anti-inflammatory repair, skin texture improvement, and tissue regeneration. Its base composition is as similar as 98% to human DNA, and is highly safe and tolerable. Overseas, PDRN has been approved for listing in countries such as Italy and South Korea, and has accumulated a large amount of research data to prove its safety, tolerability, and biocompatibility. Driven by the core product Regent PDRN products, the total revenue of Korean medical and aesthetic manufacturer Pharma Research reached about 261 billion won (equivalent to about RMB 1.37 billion) in 2023, an increase of 34% over the previous year, confirming the high market potential of PDRN products.

The domestic market space is vast, and compliance water has the potential to explode. The customer unit price of the Shuiguang project is low, the frequency is high, and demand in the domestic market is huge. According to Deloitte China and Aierjian Aesthetics consumer surveys for the first quarter of 2024, in 2023, Shuiguang ranked first among the injectable medical and aesthetic treatment programs for middle- and high-income medical and aesthetic needs/people with medical and aesthetic potential, accounting for 43%/16% of consumption respectively. Currently, terminal agencies use Shui Guang products including Device 3, Device 2, and Makeup brands. Among them, PDRN Solution has not yet launched three products. Existing products are mainly sold through imported cosmetics registration. Domestic demand for effective water and light is strong, PDRN products have good material effects, and compliance products are scarce. Against the backdrop of stricter regulations, it is expected that device 2 and makeup brand products will gradually be cleared, and PDRN materials are expected to benefit from rapid growth in compliance dividends after approval for device 3.

BD ability continues to be verified, and the layout of Acupuncture + Recombinant Collagen + PDRN is improving. From Asafei to PDRN materials, the company adheres to the logic of compliance approval+new materials and continues to expand the BD landscape. Among them, Asafei has received great attention from the recycling market since its launch. The terminal product has received excellent feedback, and is expected to accelerate volume after production capacity restrictions are lifted. The Jiangsu Wu Zhong Medical and Aesthetic Pipeline has covered many blue ocean tracks such as children's face injections, collagen, and fat dissolving injections. PDRN, as a high-potential product, will help further improve the layout of Jiangsu Wu Zhong's medical and aesthetic products.

Investment suggestions: The basic market of the company's pharmaceutical sector remains stable, the medical and aesthetic sector has been successfully approved, major pipelines such as recombinant collagen & PDRN have been accelerated, and the “pharmaceutical+medical beauty” business is expected to accelerate growth under two-wheel drive. We expect the company to achieve operating income of 2.8/3.32/3.92 billion yuan and net profit to mother of 0.13/0.25/0.4 billion yuan in 2024-2026, corresponding PE of 44/24/15 times, respectively, to maintain the “gain” rating.

Risk warning: macroeconomic downturn; risk of policy changes; pipeline development progress falls short of expectations