Summary of the report
Huaxi Biology started from the raw material business of hyaluronic acid, adhering to the "Scientific → Technology → products → Brand"
The development logic has formed a four-wheel-driven business pattern of raw material business, functional skin care business, medical terminal business and functional food business.
Raw material business: as a global leader in hyaluronic acid raw materials, the company is expected to benefit from 1) capacity expansion, Tianjin factory production line was officially put into production in 2022, with an additional production capacity of 300t hyaluronic acid; 2) Shiseido sodium hyaluronate raw materials gradually withdraw from the pharmaceutical grade HA market, the company's international market share is expected to further increase; 3) in 2021, the domestic market food-grade HA policy liberalization. Other bioactive substances are ready to be developed, and synthetic biotechnology focuses on six categories of bioactive substances: functional sugars, proteins, amino acids, peptides, nucleotides and plant natural products, and the structure of "HA+ collagen + other bioactive substances" is emerging. Following hyaluronic acid, the company focuses on building collagen, animal-derived collagen, recombinant human collagen and hydrolyzed collagen peptide.
Functional skin care business: from a product point of view, the ability to create large single products has been continuously verified. From January to September 2022, the GMV proportion of TOP5 products of run Baiyan / Quadi / Mibel / BM muscle activity Amoy system is 67.2%, 83.0% and 85.0%, 78.3%. From the channel point of view, with channel sensitivity, deeply cultivate Tmall platform, and seize Douyin channel dividend. Douyin, the skincare business, accounted for about 17% of sales in 2021, and 2022H1 further increased to about 30%. From the brand point of view, the differential positioning of the four major brands to build a brand matrix. Horizontal comparison, no matter from the domestic terminal retail sales or revenue volume point of view, the single brand scale is far from the ceiling, there is still room for development. From the perspective of vertical development, the four major brands have passed the initial growth period and entered the fine operation stage, and their profitability is expected to be improved.
Medical terminal business: the growth of pharmaceutical business is steady, the medical and beauty business has experienced strategic upgrading and adjustment, and the product pipeline planning has been basically clear. Medical and beauty business is negatively affected by the epidemic. With the relaxation of epidemic control and the continuous promotion of baby needles and Gemini needles, it is expected to achieve post-epidemic repair.
Functional food business: the space is vast, three functional food brands will be launched in 2021, including Shuiji Spring, Black Zero and Fantasy Corner, which is expected to achieve high growth at a low base.
Investment suggestion: we estimate that the company will achieve operating income of 69.3 yuan and net profit of 10.27 billion yuan and 1.807 billion yuan, corresponding to EPS2.14/2.85/3.76 yuan, in 2022, 2023 and 2024. Under the segment valuation method, the more mature raw material business adopts PE valuation, and the functional skin care products, medical terminal and functional food business uses PS valuation, corresponding to the target market capitalization space of 76.088 billion yuan in 2023, given a "buy" rating.
Risk hint
Increased competition in the industry; the promotion of new products is not as expected; the research and development of new raw materials or new products is not as expected; the regulation of the medical and beauty industry is tighter; the risk of changes in government subsidy policies; the lifting of the ban on restricted shares in November 2022 may bring short-term reduction risks.