Dengkang Dental brand of cold acid spirit
A few days ago, Chongqing Dengkang Oral Care Products Co., Ltd. (hereinafter referred to as Dengkang Stomatology) submitted an initial public offering prospectus, intending to sprint to the main board of the Shenzhen Stock Exchange. The public offering of shares will not exceed 43,043,500 shares, and it is expected to raise 660 million yuan, of which 220 million yuan will be used for intelligent manufacturing upgrade construction projects, 370 million yuan will be used for omni-channel marketing network upgrade and brand promotion construction projects, 35 million yuan will be used for oral health research center construction projects, and 35 million yuan will be used for digital management platform construction projects. According to the data, Dengkang Dental was established on December 14, 2001, mainly engaged in the research and development, production and sales of oral care products, and its subsidiaries have well-known oral care brands such as "Dengkang" and "Cold Acid Ling", and the actual controller is Chongqing State-owned Assets Supervision and Administration Commission.
Titanium Media APP found that the sales expense rate of Dengkang Dental was much higher than the R&D expense rate, and the gross profit margin of the main business was quite different from that of the head brands of peers. The company wants to develop a series of electric oral care categories such as electric toothbrushes and dental rinsers to form the second curve of enterprise development, but it faces problems such as industry homogenization and high-end difficult layout, and will face more challenges in the fierce market competition in the future.
The selling expense ratio is much higher than the R&D expense ratio
Titanium Media APP found that during the reporting period, the sales expense rate of Dengkang Dental Company was much higher than the R&D expense rate, from 2019 to the first half of 2022, the company's sales expenses accounted for 29.24%, 25.8%, 24.45%, 24.79% respectively, and the company's R&D expenses accounted for 3.21%, 3.08%, 3.11%, 2.84%, although both expense rates are in a downward trend, but the difference in expenses is about 9 times. It is reported that the company has always attached great importance to marketing promotion, and up to 370 million yuan will be used for omni-channel marketing network upgrading and brand promotion construction projects, accounting for 56.06% of the total raised funds.
It is worth mentioning that although the company's R&D expense rate is in a downward trend, the patent applications in the past two years have been more active, and the prospectus shows a total of 57 main effective patents such as invention patents and utility model patents, and among the 43 utility model patents, the number of patents applied for from 2014 to 2021 is 7, 10, 2, 1, 4, 1, 9, and 9, especially the number of patents applied for in 2020 and 2021 is more than the sum of the three years from 2017 to 2019.
Peer sales expense ratio
So, is the entire industry "heavy" marketing "light" R&D? According to the prospectus, during the reporting period, the average sales expense rates of peers represented by Yunnan Baiyao, Weimeizhi, Two-sided Needle, Bejiajie and Lafang Jahua were 24.25%, 20.4%, 23.43% and 18.19%, respectively, which was lower than the sales expense rate of Dengkang Dental in recent years. However, the company said that the revenue mainly comes from ODM sales, and the contribution of independent brands to sales revenue is small, so the investment demand in brand promotion and channel distribution is small, and the sales expense ratio is relatively low. After excluding the impact of Bejiajie, the average sales expense ratios of comparable companies in each period of the reporting period were 28.86%, 24.50%, 27.08% and 20.20%, respectively, and the company's sales expense ratio was relatively close to the industry average, and there was no major difference.
According to Nielsen Retail Research Report, Yunnan Baiyao (market share 23.86%), Dengkang Dental (market share 6.83%) and Weimeizi (market share 4.88%) ranked first, fourth and sixth respectively in offline channel sales share in 2021. From 2019 to 2021, the sales expense rates of Yunnan Baiyao were 14.01%, 11.59% and 10.71%, respectively, and the sales expense ratios of Viviz were 44.17%, 39.06% and 41.31%, respectively.
R&D expense rate of peer companies
In terms of research and development, the industry R & D expense rate is generally lower than the sales expense rate, and the gap is large, the prospectus shows that during the reporting period, the average R & D expense rate of the same industry represented by Two-sided Needle, Bejiajie and Lafang Jahwa were 1.89%, 2.08%, 2.06%, 2.75%, showing an upward trend, in contrast, Dengkang Dental investment rate for R&D showed a downward trend, but the expense rate from 2019 to 2021 was higher than the industry average. From the point of view of product efficacy, cold acid spirit in the field of anti-sensitive toothpaste has a high voice, with a market share of nearly 60%, some insiders said that in order to achieve brand breakthrough, cold acid spirit should put more effort in anti-allergic effect and create more product lines. Because in the anti-allergic ingredients of toothpaste, cold acid spirit is potassium nitrate and strontium chloride, competing products (taking GSK Comfort as an example) are usually potassium nitrate, sodium fluoride, strontium acetate and Novamin (sodium calcium phosphosilicate), competing anti-allergic product lines are more, Saltrain and Comfort also use beauty ingredients, and successively launch Centella Asiatica extract anti-allergic toothpaste. If the company increases R&D investment in this area, it may be able to gain more market share.
The gross margin and the head brand are quite different
According to the prospectus, from 2019 to 2021 and the first half of 2022, the revenue of Dengkang Dental was 944 million, 1.03 billion, 1.14 billion and 610 million, the net profit was 63.163 million, 95.2403 million, 120 million and 58.1311 million, and the gross profit margin was 42.26%, 41.71%, 42.1% and 41.76% respectively. In contrast, during the reporting period, the average gross profit margin of comparable companies in the same industry, which was 36.16%, 36.37%, 36.94% and 29.6%, respectively, gradually decreased, and the gap with Dengkang Dental was increasing, the company said, mainly due to the differences in product structure, business model, customer structure and other aspects of each company.
Main business gross margin, data: prospectus
However, the titanium media APP found that the gross profit margin of the company and comparable products in the same industry is also quite different, from 2019 to 2021, the gross profit margin of its main business is 42.24%, 41.7% and 42.1%, respectively, while the gross profit margin of the head enterprise Yunnan Baiyao self-made industrial products is 60.98%, 61.18% and 63.98%, respectively, and the gross profit margin of Weimeizi oral care products is 53.8%, 58.1% and 62.8%, respectively, which are much higher than Dengkang Dental. In this regard, the company said that the main reasons are different product market positioning, different functions, and differences in sales channels and key markets covered.
The second growth curve electric toothbrush business is difficult to form
The company stated in the prospectus that the company will focus on the layout and development of a series of electric oral care categories such as electric toothbrushes and toothbrushes to form the second curve of enterprise development. In 2021, the company's sales revenue of electric toothbrushes, oral medical treatment and beauty care products were 6.66 million yuan and 8.91 million yuan, accounting for only 0.58% and 0.78% of the revenue; In the first half of this year, the sales revenue of oral medical and beauty care products increased, but it only accounted for 1.21% of the revenue.
Some insiders said that in the current mainland electric toothbrush market, most domestic brands produce low-end and mid-end products, and the industry homogenization is serious. On the one hand, in terms of the motor with the most core technology of electric toothbrushes, most domestic brands are currently in the research and development stage or rely on imports, so there are relatively few high-end layouts; On the other hand, electric toothbrushes are mainly composed of batteries, motors, shells and brush heads, and the overall structure is simple, so most manufacturers are more likely to enter the low-end (price within 250 yuan), mid-end (price 250 yuan-600 yuan) market, the rapid growth of the low-end and mid-end markets makes the industry homogenization begin to prominent.
The competition in the tooth punch market is also quite fierce, Midea, Haier, Panasonic and other traditional home appliance brands, usmile, Bayer intelligence, Sushi and other emerging personal care small home appliance enterprises, Xiaomi, Huawei and other consumer electronics brands have laid out the track, some industry insiders said that domestic brands on the one hand to do a good job in brand building, increase market share; On the other hand, it is to increase the research and development of products and create their own unique advantages, so that it is easier to stand out.
Will the company increase R&D investment in the future? Can there be more efficacy innovations in anti-allergic toothpastes in the future to expand the product line? What strategy will be adopted to improve the second curve business such as electric toothbrushes, etc., the titanium media APP sent the "research letter" to the company's mailbox, but as of press time, there was no reply.
(This article was first published on the titanium media APP, author| Liao Kaiping)