On the popularity of "Erbin", Erjiacheng is in marketing, and he is defeated in "only" marketing?

Image source: Visual China

Blue Whale financial reporter Shao Yuting

On New Year's Day 2024, "Erbin" will go out of the circle, and tourists from all over the world will rush to it, achieving a total tourism income of nearly 6 billion yuan in 3 days. The popularity of cultural tourism in Northeast China has also driven the activity of related stocks in the A-share market.

Harbin-based medical aesthetic company Fuerjia (301371. SZ) did not miss the opportunity of this wave of "rubbing heat". Recently, two themed ice sculptures of "Fuerjia Gift Box" and "Fuerjia Crystal Ball" have been created in Harbin Ice and Snow World, and visitors can go to the "Fuerjia Gift Box" to receive Fuerjia masks for free with tickets.

On January 9, Fuerjia closed at 40.45 yuan per share, up 13.5% from the opening price on December 27, 2023.

Strong marketing representatives, Erjia rubbed on the ice and snow heat

For a long time, Fuerjia has been regarded as a representative of "strong marketing", and its marketing gene has been inherited from its predecessor, Huaxin Pharmaceutical.

In 1989, Zhang Liguo, who graduated from Heilongjiang University of Traditional Chinese Medicine for three years, entered the No. 5 Pharmaceutical Factory of Harbin Pharmaceutical Group, and became the technical director of the workshop from production scheduling, and then jumped to the pharmaceutical company invested by his alma mater as a department manager.

In 1995, the old owner Harbin Pharmaceutical Group No. 5 Pharmaceutical Factory and the United States Dasheng jointly established a pharmaceutical company Harbin Sanlian (002900. SZ）。 In the following year, Zhang Liguo established Heilongjiang Huaxin Pharmaceutical Co., Ltd. (hereinafter referred to as "Huaxin Pharmaceutical"), which was the predecessor of Fuerjia.

After its establishment, Huaxin Pharmaceutical Co., Ltd. acted as an agent of Harbin Sanlian to carry out drug wholesale business. According to the prospectus of Fuerjia, since its establishment, Huaxin Pharmaceutical has mainly engaged in the wholesale of prescription drugs for powder injection, and the drugs mainly include vinpocetine for injection and other products produced by Harbin Sanlian.

In 2012, Zhang Liguo decided to enter the field of skin care products, and two years later, Huaxin Pharmaceutical completed the research and development of "Medical Sodium Hyaluronate Repair Patch", and obtained the "Fuerjia" trademark registration certificate the following year.

In September 2016, Zhang Liguo cooperated with Harbin Sanlian, which has a Class II medical device production license, with Harbin Sanlian responsible for the exclusive production of Fuerjia products, and Huaxin Pharmaceutical Co., Ltd. responsible for the exclusive sales and promotion of Fuerjia products. In the second year, Fuerjia Company was incorporated, and Zhang Liguo served as the chairman and general manager of the company.

Until 2020, when it was preparing to go public, Fuerjia did not have its own production capacity. According to the prospectus, from 2018 to 2020, Fuerjia purchased 87 million yuan, 329 million yuan and 361 million yuan from Harbin Sanlian, accounting for 99.69%, 95.3% and 96.93% of the total procurement amount, respectively.

In February 2021, Fuerjia, which has been controversial by the OEM model, acquired Beixing Pharmaceutical, a wholly-owned subsidiary of Harbin Sanlian, through the transfer of Beixing Pharmaceutical, which acquired 5% of the equity of Fuerjia.

Founded in November 2020, Beixing Pharmaceutical has fully inherited the production business of Harbin Sanlian Class II medical devices and cosmetics, and has medical device production licenses, cosmetics production licenses, 3 Class II medical device registration certificates and nearly 30 cosmetic product filing certificates. At this point, Fuerjia can be regarded as having independent production capacity.

For Fuerjia, production and research have just begun.

Pharmaceutical promotion route creates a "marketing myth"

In the official flagship store of Fuerjia, the price of a box of medical dressings (white film) is about 148 yuan, and it is still more than 100 yuan after the discount. However, the prospectus shows that in 2021, the unit price of dressings and masks purchased from Harbin Sanlian will be about 10 yuan/box, and the gross profit margin will be 81.95%.

Despite the "windfall profits", consumers still pay. According to Frost & Sullivan's analysis report, in 2021, the sales volume of Fuerjia patch products ranked first in the patch professional skin care products market, accounting for 15.9%, of which medical device patch dressing products accounted for 17.5%, ranking first in the market.

Why are consumers still willing to buy Fuerjia at such a high premium?

In terms of product layout, Fuerjia, who was born in a pharmaceutical company, has a different entry point from other beauty and skin care brands. Around 2015, the concept of professional skin care took root in the hearts of the public, medical cosmetology emerged, and concepts such as "sensitive skin" and "postoperative repair" burst out.

Generally, facial masks belong to the "makeup brand", but the second-class medical device product "Medical Sodium Hyaluronate Repair Patch (White Film)" belongs to the "machine brand", which is mainly aimed at wound healing and skin repair. The labels of "medical beauty mask" and "mechanical brand mask" sound safe and professional with ingredients, which attracts many young consumers.

In terms of sales channels, Fuerjia was the first to choose to lay out hospitals and medical aesthetic institutions. Relying on the offline sales channels of Huaxin Pharmaceutical, Fuerjia uses the distribution model to promote the sales of medical dressing products from public hospitals to enterprises in terminal channels such as out-of-hospital medical institutions, beauty institutions, and chain retail pharmacies. In the later stage, Fuerjia increased online channels.

In the early days, Fuerjia mainly relied on offline channels to distribute goods, and the sales model was distribution. From 2020 to 2021, the revenue of Fuerjia's offline channels accounted for more than 60%.

In 2022, live streaming e-commerce is booming, and this situation has changed, and Fuerjia has begun to actively deploy online channels, and the proportion of revenue has increased from 29.08% in 2020 to 40.62%. The online sales model is divided into three types: direct sales, consignment sales, and distribution, and is spread across e-commerce platforms such as Tmall, Xiaohongshu, JD.com, Douyin, Taobao, and Ali Health Pharmacy.

Finally, in terms of marketing model, Fuerjia did not let go of any channels for brand promotion, from the early social marketing to the later celebrity endorsement, live broadcast cooperation, variety show sponsorship, e-commerce platform promotion, etc., multi-mode and all-round marketing.

Its marketing expenses have also risen. From 2020 to 2022, the sales expenses of Fuerjia will be 265 million yuan, 264 million yuan, and 390 million yuan respectively, and the sales expense ratio will be 16.75%, 16.01%, and 22.06% respectively. At the time of the IPO, Fuerjia said that it planned to invest 885 million yuan to raise funds for brand marketing and promotion.

Finding the entry point of medical cosmetology, through the sales strategy of multi-channel layout and the combination of online and offline marketing ideas, Fuerjia quickly opened up the market.

Can increasing R&D revitalize Fuerjia?

On August 1, 2023, Fuerjia officially landed on the GEM. However, after the listing, the company's performance declined, the re-marketing strategy once caused the market to question, only 57 days after listing, the stock fell below the issue price, as of January 9, the stock price high point of 80.04 yuan / share has been nearly halved.

In the first three quarters of 2023, Fuerjia's operating income will be 1.339 billion yuan, a year-on-year increase of 1.86%, and the net profit attributable to the parent company will be 536 million yuan, a year-on-year decrease of 17.33%.

On the one hand, regulation is tightening day by day. In 2020, the State Food and Drug Administration made it clear that there are no "machine name masks" and "medical beauty masks", and the naming of medical dressings under the management of medical devices shall not contain claims such as "beauty" and "health care", and shall not contain exaggerated scope of application or other misleading and deceptive content.

On the other hand, customer acquisition costs are growing. From 2020 to 2022, the promotion service fees of Fuerjia's online e-commerce platform were 85 million yuan, 165 million yuan, and 242 million yuan respectively, and taking the Tmall platform as an example, the promotion service rates for each period were 21.65%, 29.16%, and 31.92% respectively, showing a rapid growth trend.

However, the unit price of products in online direct sales channels is generally declining. From 2020 to 2022, the unit prices per box of Fuerjia's main business products in online direct sales channels were 70.44 yuan, 67.59 yuan, and 56.97 yuan, respectively.

In addition, in the past two years, there have been many new players in the patch product track, and the market competition has increased. Bethany (300957. SZ), Bloomage Biotech (688363. SH), Juzi Biotech, Chuanger Biotech and other companies have a layout in patch medical device dressing products and patch functional skin care products.

Renovation and upgrading are imminent. After having its own production capacity, Fuerjia gradually increased its research and development efforts. In 2020 and 2021, the R&D expenses of Fuerjia will be 1.4797 million yuan and 5.2429 million yuan respectively, accounting for 0.09% and 0.32% of operating income. In 2022 and the first three quarters of 2023, Fuerjia's R&D expenses will be 15.4261 million yuan and 15.6157 million yuan respectively. The number of R&D personnel has also increased from 4 in 2020 to 22 in the first half of 2023.

R&D investment has increased the expansion of product strategy, and Fuerjia is also trying to get rid of the model of mainly relying on large single products to make profits, Huajin Securities research report shows that on the basis of dressings, Fuerjia continues to expand and launch many main collagen, astaxanthin, As of the first half of 2023, it has more than 40 kinds of professional skin care products, and is still expanding.

However, while increasing research and development, Fuerjia still did not stop increasing investment in marketing. In the first three quarters of 2023, Fuerjia's sales expenses increased by 22.60% year-on-year to 355 million yuan from 290 million yuan in the same period of the previous year, and the sales expense ratio further increased to 26.53%.