Source: Qing Zhao
Author: Li Pian Pian

In today's beauty industry, where competition is fierce, brands cry out that ‘marketing costs are eating into profits’ while biting the bullet and pouring over half of their revenue into live streaming and KOLs.

However, a company named $GIANT BIOGENE (02367.HK)$ stands out——it has a ‘skin-eating collagen’ product, which not only achieves a net margin of over 40%, leading to a stock price increase of 150% over two years, but is also continuously setting new highs, currently becoming the highest market cap domestic beauty enterprise.

In an increasingly intense cycle of competition, how has GIGABYTE Biotech become the highest market cap beauty company in China?

1. Competing on price is not as effective as competing on technology; grabbing traffic is not as good as grabbing patents.

Collagen, known as the "fountain of youth for skin," has been a "noble player" for decades. Traditional animal-derived collagen, extracted from cows, pigs, and fish, is not only exorbitantly priced (nearly 0.08 million yuan for an injection of aesthetic filler) but also faces issues such as a complicated extraction process and potential allergic reactions, making it hard to reach common households.

Until 2000, a discovery by the team of Fan Daidi from Northwestern University completely changed the game—using E. coli as a "manufacturing plant" to mass-produce human collagen. In simple terms, scientists inserted gene fragments of human collagen into the bacteria and produced it in bulk using fermentation technology.

Through gene editing technology, Juzhi Biotechnology achieved a purity of recombinant collagen at 99.9% and a bacterial endotoxin concentration below 0.1E/mg, meeting medical-grade standards. This technology not only reduces costs and shortens production cycles but also circumvents safety hazards associated with animal sources, representing a "collagen equity movement."

The mastermind behind this revolution is Juzhi Biotechnology, founded by Fan Daidi and her husband Yan Jianya. By 2024, its annual production capacity of recombinant collagen has reached 10.88 tons, holding 133 patents, making it the world’s first company to mass-produce this ingredient.

In the recombinant collagen race, Juzhi Biotechnology has two major trump cards: leading technology and production capacity that is ten times greater than competitors.

Technologically, it has upgraded from recombinant collagen (60% similarity) to recombinant human collagen (100% similarity), holding 25 different functional collagen segments that can be combined like "LEGO" to create anti-aging, hydrating, and repair effects.

While peers are still experimenting with the triple helix structure in laboratories, Juzhi Biotechnology has already mass-produced injectable products and obtained class III medical device certification for bone repair materials.

In terms of production capacity, its Xi'an factory has an annual output of 10.88 tons, making it unattainable for competitors. After all, in the biotechnology fermentation industry, scale equals cost, and cost equals pricing power. In the first half of 2024, its effective skincare product production cycle was only 9-13 days, with supply chain efficiency overshadowing competitors; Earnings Reports show that during the same period, Juzhi Biotechnology’s net margin was close to 40%, the highest among listed beauty companies.

The core reason why Juzhi Biotechnology can outperform in the consumer market is that it has chosen a strategy of "surrounding the city from the countryside."

Traditional collagen players (such as Taiwan's Shuangmei) focus on high-end Medical aesthetics, where a single injection price deters 95% of consumers. Juzhi Biotechnology, however, has taken a different approach by first entering the market with medical dressings (Category II medical instruments). A box of five Kefu Mei masks is priced at around 100 yuan, which is only a fraction of the price of Medical aesthetic injections, yet meets the basic need for sensitive skin repair.

Relying on the "medical aesthetic level effect, skincare product price" strategy, Kefu Mei quickly became a bestseller, contributing 81.5% of Juzhi Biotechnology's revenue in the first half of 2024.

Having established a foothold with medical dressings, Juzhi Biotechnology has also begun to incorporate restructured collagen into serums, creams, and other daily skincare products, launching anti-aging Koligen, with pricing aimed at the middle-class wallet (109-680 yuan). From medical dressings to functional skincare, Juzhi Biotechnology has completed consumer education with "low-priced, high-frequency" products, and then harvested brand premium with high-priced products, catching competitors off guard with this combination of strategies.

In the first half of 2024, Kefu Mei generated revenue of 2.071 billion yuan, making it the youngest brand among those with revenue surpassing 20 million in half a year; in the second half of the year, during the first payment period of the November 11 Shopping Festival-Related, Kefu Mei collagen sticks surpassed 100 million in sales in the first hour of sale, achieving the same milestone as international big brands like Helena Rubinstein's black band cream and SkinMedica's AGE cream.

2. The Capital Markets only recognize "hard core stories."

Since its emergence in the market, Juzhi Biotechnology has never lacked reference points.

In the past, Juzhi Biotechnology's reference point was the medical dressing industry, during which it was grafted onto the rapidly growing light Medical aesthetic market (with a compound annual growth rate of 24.9% from 2017 to 2021), while the compound annual growth rate of the medical dressing market reached as high as 86.3%.$Harbin Fuerjia Technology (301371.SZ)$Companies like Giant Bio and Chuang'er Bio have successively gained popularity, only to fall silent amidst the market's criticism of the so-called 'IQ tax'.

In contrast, Furje's matrix raw material, hyaluronic acid, has reached a penetration rate of 66% in the skincare market, and stripping away the marketing veneer of medical dressings has trapped Furje in a cycle of transformation; while Giant Bio's matrix raw material, recombinant collagen, is still in the market education phase, with a penetration rate of less than half of that of the former, instead using bottles and jars of serums and creams to replace medical dressings, Giant Bio is yet another effective skincare company.

It is evident that the competition within the beauty industry is essentially 'homogeneous competition'. Giant Bio manages to break through by relying on 'technological disruption + precise pricing'—using foundational innovation to break raw material monopolies, then opening up the market with popularized products.

While peers are still in the live streaming sessions competing with 'buy one get one free', it has quietly transformed the bacteria in its laboratory into a money printing machine on the dressing table. This may serve as a wake-up call for all beauty companies: competing on price is less effective than competing on technology, and chasing traffic is less important than pursuing patents.

After all, consumers' faces need collagen, and the differing performances of Furje and Giant Bio post-listing also demonstrate that Capital Markets only recognize 'hardcore stories'.

However, the explosion of the recombinant collagen market has attracted a pack of wolves surrounding it.

For example,$CHICMAX (02145.HK)$Collaborating with Juyuan Biology, planning to launch a new brand of recombinant collagen skincare, Jiaoyuanli, this year.$Proya Cosmetics (603605.SH)$Introducing recombinant collagen ingredients into the Yuanli Cream 2.0; the second-generation frame cream launched by Pazhai Ling also contains recombinant collagen.$Lushang Freda Pharmaceutical (600223.SH)$By the end of 2023, it will launch the brand Kemi Keyc, with recombinant collagen as the core.

Now looking at international big brands,$Shiseido (4911.JP)$LVMH has invested in the establishment of Medical; L'Oreal is collaborating.$JINBO (832982.BJ)$Initially, recombinant collagen was added to the Little Honey Pot formula, and then the Rejuve Platinum Collagen Injection was launched, while$Estee Lauder (EL.US)$Clinique, a subsidiary, also launched recombinant collagen wound dressings.

As for medical aesthetic injectable products, many manufacturers, including Jinbo Biotechnology, Giant Biological, Creation Medical, and Juyuan Biotechnology, have been actively developing and obtaining three types of medical instruments certifications; as early as October 2023, leading medical aesthetic companies$Imeik Technology Development (300896.SZ)$gained access to the collagen market through the acquisition of Harbin Peiqilong Biopharmaceutical Co., Ltd. By 2025-2026, it is expected that recombinant collagen medical aesthetic products will be launched in clusters.

However, the advantage of Bloomage Biotechnology Corporation Limited lies in its "first mover mentality"—when consumers think of collagen, the first brand that comes to mind is KeFuMei. This type of brand association is similar to that in the field of hyaluronic acid.$Bloomage Biotechnology Corporation Limited (688363.SH)$Its shortcomings are also quite apparent: the progress of medical products lags behind Jinfo Biotechnology (the latter has launched category III medical instruments for injection), while its overseas business has so far only "heard the stairs creaking."

Referring to the development history of hyaluronic acid, once there is a technological breakthrough and cost reduction, China could very well turn recombinant collagen into the next global cosmetic ingredient calling card.

Frost & Sullivan predicts that by 2027, the market size of China's recombinant collagen will reach 108.3 billion yuan, with efficacy skincare products accounting for over 60%. At that time, with production capacity and patents in hand, Bloomage Biotechnology Corporation Limited seems destined to be the next Bloomage Biotechnology Corporation Limited.

3. The wind will come and go, the breakthrough to escape the internal competition is brand strength.

In 2024, China's cosmetic retail sales are expected to reach 435.7 billion yuan, a year-on-year decline of 1.1%; the growth rate of Douyin beauty GMV plummeted from 32% in 2023 to 0.6% in the first three quarters of 2024; the marketing expenses of many listed beauty companies have exceeded 50%, while those that are not listed can even reach 70% or 80%.

It is evident that the beauty market has moved beyond mere stock competition and is now in a phase of volume contraction, during which most companies are impacted by the Large Cap.

At the end of February, Bloomage Biotechnology Corporation Limited released its 2024 performance report, reporting revenue of 5.371 billion yuan, a year-on-year decrease of 11.60%; net income of 0.164 billion yuan, a year-on-year decrease of 72.27%. This marks the first time since Bloomage's listing that both revenue and net income have experienced double-digit declines, making it the worst annual report submission since the company went public and recording the largest decline in performance.

In contrast, the emerging Juzi Biotechnology is thriving. In the first half of 2024, Juzi Biotechnology achieved revenue of 2.54 billion yuan, a year-on-year increase of 58.2%, and net income of 0.981 billion yuan, a year-on-year increase of 47.2%.

The 'peak adjustment' of Bloomage and the 'rapid advance' of Juzi represent a significant narrative of the old and new transition in the wealth-generating raw material track, though their development trajectories are vastly different — the former conquers the globe with hyaluronic acid, while the latter attempts to rewrite beauty rules with recombinant collagen.

The strategy of Bloomage Biotechnology lies in deep penetration of the industry chain, prioritizing raw materials before branding: the upstream is crafted into an open raw material reservoir, while the downstream employs platforming to achieve multi-brand encirclement.

Through microbial fermentation technology, Bloomage Biotechnology has reduced the cost of hyaluronic acid from thousands of yuan per gram to a 'cabbage price', and through enzyme cutting technology, it precisely controls molecular weight, expanding application scenarios from medical to skincare, food, and even papermaking.

For the B-end, its global market share of hyaluronic acid raw materials exceeds 40%, and pharmaceutical-grade products have achieved 28 international certifications, truly realizing a 'from laboratory to industry chain' closed loop. For the C-end, the products under Bloomage cover over 20 sub-sectors including skincare, personal care, and pet care, with revenue for functional skincare products reaching 3.32 billion yuan in 2023, gradually increasing to 62% of total revenue.

However, the profit distribution mechanism in the cosmetics industry chain determines that upstream raw material companies can only follow a low-margin and high-volume sales route. With delays in entering the consumer market and facing increasingly fierce competition in the terminal market, Bloomage has not yet found a way to break free from the hyaluronic acid brand label, with its skincare business even hitting a low point in 2024.

Bloomage Biotechnology Corporation Limited has seen its market cap drop from hundreds of billions to 23.7 billion yuan, which serves as a warning for Juzi Biotechnology — if it cannot break through technological generations, accelerate its overseas expansion, and rapidly build brand power, its high valuation may become a castle in the air.

Therefore, Giant Biology's closed-source strategy is somewhat understandable. Currently, it insists on not releasing production capacity externally, focusing on a breakthrough with a single explosive product in the Consumer market, dedicated to building brand strength. Its two major brands, Kefu Me and Keli Jin, contributed 97.13% of Giant Biology's revenue in the first half of 2024.

In addition to these two, Giant Biology's restructured collagen brand matrix also includes: Kefu, aimed at skin inflammation issues; Keheng, for scar repair; Kefu Ping, for oral ulcers; and Liyan, targeted at women's health, precisely controlling every niche market to strengthen brand power and respond to competition from newcomers.

This battle for survival rules between the "old empire" and the "emerging forces" involves deep games of technical paths, market strategies, and even era dividends. Regardless of who emerges victorious, it heralds the beginning of the "hardcore era" of Cosmetic raw materials in China.

Editor/rice