Hyaluronic acid drinking water, white kidney bean slimming chewing tablets, soothing anti-aging soft candy, brain vitality UP bright eye soft candy, American ginseng drink, collagen bird's nest drink. Since the beginning of this year, A-share hyaluronic acid leader Huaxi Biological (SH:688363) planned and launched a series of food and beverages containing hyaluronic acid, which puzzled some investors and consumers.

That's not the only thing that surprised investors. As the leading raw material of hyaluronic acid in China, its market share has reached 70%.In the process of layout downstream, Huaxi Biology is not satisfied with providing medical hyaluronic acid products to medical institutions, but chose a to C path.

Before the recent launch of food and beverage, Huaxi made several skin care brands, including run Baiyan, muscle activity, Mabel, Quadi, lipstick and beauty mask co-signed with the Imperial Palace.

In 2020, Huaxi's income from "functional skin care" (1.346 billion yuan) exceeded that of raw materials (703 million yuan) and medical terminal products (576 million yuan) for the first time, and the C-end strategy seemed to be successful.

However, choosing the downstream product layout of to C brings another problem:The ultra-high cost of sales in the skincare business will erode Huaxi's overall profit margins and drag down its profit growth-cosmetics are far less fragrant than medical and beauty products.

The products are mainly aimed at SZ:300896 of medical and beauty institutions, and its performance is far better than that of Huaxi Biology. Revenue in 2020 increased by 27.18%, while net profit increased by 43.93% compared with the same period last year. Huaxi's revenue and net profit in the same period were only 39.63% and 10.29%, respectively.

At the same time, Emick's current price-to-earnings ratio is about 240 times earnings, almost twice that of Huaxi.

Also hyaluronic acid bibcock, Huaxi Biology and Emick have embarked on different product layout paths. Why does the difference in strategic layout between B and C bring about a valuation difference as high as double? Which is the real "broad road"?

Huaxi creature, it is difficult to make money lying down.

It's not that Huaxi doesn't want to lie down and make money, but it can't.

Reviewing the growth history of Huaxi Biology, it became the world's largest R & D manufacturer of hyaluronic acid raw materials in 2005, entered the field of medical terminals in 2012, and entered the field of functional skin care products in 2014. In January 2021, after the National Health Commission approved hyaluronic acid as a food raw material, China's first hyaluronic acid food brand "Black Zero" was launched.

Since then, Huaxi Biology has formed a whole industry chain business system from raw materials to medical terminal products, functional skin care products and food.

As a raw material manufacturer, Huaxi Biology first began to cut into the downstream market from the field of medical terminal, that is, to B.This field has always been regarded by the market as "profiteering", and its high profit margin is difficult to catch up with C-end consumer goods such as skin care products and food.

For example, Emeike's "Baoda" products for medical and beauty institutions. The prospectus shows that the direct material cost is less than 14 yuan per unit, and the cost price is 32 yuan after adding labor and manufacturing costs, but the ex-factory price is as high as 2547 yuan per unit. After going through layers of price increases by dealers and medical institutions, about 10,000 injections will be injected into medical institutions.

According to the estimation of Anxin Securities, the terminal price of hyaluronic acid per milliliter in China is about 857 yuan, and the cost of raw materials is only 30 yuan. Among themThe upstream hyaluronic acid manufacturer increases the price by 270 yuan, and the gross profit is as high as 85%, 95%.Dealers and medical institutions increased the price by 557 yuan, of which the doctor's commission was 85 yuan, accounting for about 10%.

In terms of upstream raw materials, pharmaceutical-grade hyaluronic acid raw materials have higher technical barriers and higher prices than cosmetic grade and food grade.

Then why did Huaxi Bio "shelve" such lucrative medical and beauty products and instead focus on expanding the skin care business?

It is not difficult to find that the proportion of medical terminal products in Huaxi biological revenue is getting lower and lower, while the proportion of functional skin care business in its revenue is getting higher and higher.As a result, outsiders began to question why Huaxi didn't lie down and make money.

Some attribute it to the chairman's strategic vision. Zhao Yan, chairman of Huaxi Biology, said in an interview earlier, "will not do diversified development, will only focus on their own industrial positioning, deeper, wider and bigger." Many downstream to C applications can be seen as an expansion of breadth.

But the real reason is that Huaxi's raw material business and medical terminal business have encountered bottlenecks and it is difficult to support its next rapid growth.

According to the financial report, revenue from Huaxi's raw material products business in 2020 was 703 million yuan, down 7.6% from the same period last year, while revenue from the medical terminal business was 576 million, up 17.8% from the same period last year. If you look at these two businesses alone, revenue growth in 2020 was only 2.3% year-on-year, which is already very slow.

It is worth noting that Huaxi Biology has two important expansion actions in 2020. One is the acquisition of Foster Bio in June, with an annual output of 100 tons, increasing the raw material production capacity by about 30%. The second is to launch moisturizing "baby needle" products with micro-crosslinking technology and lidocaine sustained-release technology in the second half of the year.

But under such expansion, the revenue growth of Huaxi's biological raw materials and medical terminals is still slow, which shows that it has encountered serious growth bottlenecks.

It's not that Huaxi doesn't want to lie down and make money, but it can't. Functional skin care products and food have become the only way for its expansion.

Emick, lying down to make money is also worried.

Amy, who "lay down to make money", also has its own challenges and concerns.

It is different from Huaxi's whole industry chain layout from raw materials to medical terminal products, functional skin care products and food.Emick almost exclusively does to B business, selling only the medical and beauty terminal products with the highest gross profit margin, which accounts for 99 per cent of its revenue.

According to Frost&Sullivan, Emick ranked first in sales among domestic brands of hyaluronic acid in 2018 and 2019.

Among the 6 hyaluronic acid injection products, 5 have passed NMPA certification, ranking first in the industry; it is the only local listed company with long-term product layout; three main products such as Hi body, Avery and Baoda are all labeled as "first", "only" and "first".

In particular, Hi body is the only three types of medical device products approved by the State Drug Administration to improve neck wrinkles, filling in the gap in the field of neck wrinkle repair.

The product structure and excellent product power based on medical and beauty terminal products ensure the strong profitability of Aimek. In the past two years, the gross profit margin of its sales is more than 90%, and the net profit margin is more than 50%, far higher than that of its peers.Especially in 2020, the gross and net profit margin of Emeike is even higher than that of Guizhou Moutai.

However, Emmett, "lying down to make money", also has its own challenges and concerns.

Medical and beauty products have a certain life cycle. At present, it is still uncertain whether Emick's popular style products can continue to iterate, and whether the follow-up research and development products can continue to be popular.

Many investors worry that Aimek may be "successful or defeated", frustrated by the failure of the technology iteration.

Secondly, as Emick pointed out in the prospectus, at present, the hyaluronic acid market is improving, and the average gross profit margin of the leading products is relatively high, attracting many enterprises to enter the domestic market through independent research and development or mergers and acquisitions. industry competition will gradually intensify, and there is a risk of a decline in the company's gross profit margin.

According to public data, 23 kinds of hyaluronic acid products for injection have been approved and listed by the State Drug Administration, belonging to 14 enterprises, including 6 imported enterprises and 8 domestic enterprises. Among them, Emeike a total of five products "shortlisted", Huaxi Biology and Haohaisheng Division have two products to obtain the certificate.

It can be predicted that as Huaxi's various medical and beauty hyaluronic acid products are in the clinical stage, the third generation of Haohai's "new linear non-particle characteristics" hyaluronic acid products have completed clinical trials, and the competition in the industry will intensify.

At present, a series of new medical and beauty products reserved by Aimeke include: "botulinum toxin A for injection", commonly known as "facial slimming needle", has entered the clinical trial stage; "child facial needle" (3D poly-L-lactic acid) is being registered and is expected to become the first product in this category to be approved by the domestic Ⅲ medical certificate; and "slimming drugs" (genetic recombinant protein drugs) have invested more than 300 million yuan in research and development and are conducting preclinical research.

In particular, "botulinum toxin A" is expected to become the next blockbuster product of Aimeic. in the overseas medical and beauty market, the use of botulinum toxin is higher than that of hyaluronic acid.

However, these new products are still going through the approval process, there are still variables, and their actual effects have not yet been verified. With this alone, Emmett can't really "lie down and make money" like Maotai.

Choice and fate

Before establishing brand reputation, skin care products must invest a lot of sales expenses to occupy the market.

As the leading raw material of hyaluronic acid in China, Huaxi Bio started with to B business, but because the medical terminal products are really difficult to bite, it chose a to C strategy, focusing on the field of skin care products.

It can be seen that from 2016 to 2020, the compound annual growth rate of Huaxi's bio-functional skin care business exceeded 100%, which is equivalent to doubling every year.

But,If you want to really win the skincare market, it is destined to be an uphill battle and protracted war. In particular, taking the high-end route is tantamount to choosing the "hell mode".

Huaxi faces few competitors in the hyaluronic acid injection market. The raw material end of hyaluronic acid is in the absolute leading position, but there are many strong enemies in the field of skin care products: four major overseas brands occupy about 25% of the market; in the subdivision of functional skin care products, there are also domestic competitors such as Winona, Yayang, Yuze, Lifuquan and so on.

By contrast, 1.346 billion of revenue from its skincare business in 2020 can only be regarded as a "pupil" in the industry.

C-end skin care products must invest a lot of sales expenses to occupy the market before establishing brand reputation, which will seriously affect the profit margin of the enterprise.

For example, L'Or é al's advertising and promotion fees account for about 30.9% of sales, operating profit margin of about 18%; new brands such as perfect Diary parent company's marketing expenditure accounts for 41.3% of revenue, resulting in its financial losses. After Huaxi laid out its skincare business, the rate of sales expenses increased from 14.6% in 2016 to 42% in 2020.

To occupy the functional skin care market, Huaxi has the advantage of the raw material end of hyaluronic acid, and has a certain degree of popularity and recognition among some consumers who pay attention to the composition of skin care products.

However, it is not easy to turn this advantage into long-term brand power and repurchase rate. Huaxi has to fight several tough battles, and huge sales costs are inevitable. Affected by this, Huaxi biological profit performance is difficult to stand out.

For Aimeke, due to China's policy for the production of medical devices to adopt the production license and record system, especially for the production of III medical devices, there are strict audit standards, and up to 4 years or more of the audit cycle. This is the key moat of Aimek's dominant position in the market.

The key to its current market advantage position lies in the first-mover advantage.

According to the data, it took five years from its establishment in 2004 to the approval of its first product in 2009. Huaxi did not enter the field of medical terminals until 2012. There is a gap of several years.

The new competitor has not yet entered the market, and now it is the "comfort period" that Emmett should cherish. Reflected in the capital market, it is given a price-to-earnings ratio of more than 240 times, a share price of more than 500 yuan and a market capitalization of more than 100 billion yuan.

Written at the end: neglected R & D investment

Both to B and to C strategies require long-term R & D investment and innovation.

Hyaluronic acid for injection is a very scientific and technological field, and it also has a high technical threshold, but the proportion of R & D investment of the two enterprises is not very high.Emick's R & D investment ratio is about 8% in the long run, while Huaxi Biology's R & D investment ratio in 2020 is less than 6%.

The reality of the industry is far from as prosperous as in the capital market: the domestic hyaluronic acid market is still dominated by imported brands, including Huaxi Biology, Aimeke and Haohaisheng.The market share of domestic brands is only about 23%., far lower than imported brands.

The realization of domestic substitution through technological innovation may be the star sea of hyaluronic acid enterprises.