In 2014, a pharmacist named Zhang Liguo completed the research and development of the "Medical Sodium Hyaluronate Repair Patch" product. At that time, he did not expect that in the next ten years, such a small piece of film would completely detonate the Chinese skin care market.
This "medical sodium hyaluronate repair patch" is the first batch of Class II medical dressing patches with sodium hyaluronate ingredients approved for marketing in China. Zhang Liguo named his registered trademark as Fuerjia.
The year 2023 that has just passed is the year of the explosion of domestic beauty brands. From January to November 2023, in the TOP20 list of Douyin skin care, domestic products occupy 11 seats. In addition, in terms of the performance of the "March 8th Festival" in 2024, domestic brands are also performing well, and among them, hyaluronic acid brands have a significantly higher growth.
Fuerjia is also growing rapidly in such an industry background, and will be listed in the capital market in August 2023, becoming the "first stock of medical dressings".
1. Sodium hyaluronate material: a woman's business, a hot market
Behind the explosion of domestic products and the growth of sodium hyaluronate, there is a track that is easy to give birth to super large items: functional skin care.
Around 2015, functional skin care products really rose in China. The mainland skin care market is expected to grow at about 10.3% from 2021 to 2026.
This track has given birth to one blockbuster IPO after another, including Bethany, Bloomage Biotech, Giant Biotech, etc., and Fuerjia is also one of them.
Chart: Growth rate of the skincare industry
(Source: Frost & Sullivan)
Skin care products, according to the form of the product, can be divided into three categories: injections, dressings, and masks.
From 2017 to 2021, the market size of medical dressings reached 2.59 billion, with an annualized growth rate of 40%. According to Frost & Sullivan, the market size growth rate will reach 23.1% from 2022 to 2027. Among them, the growth of light medical aesthetic users and users' preference for functional skin care are the core drivers of the industry's growth.
Let's look at each of these two growth drivers:
Light medical aesthetics - the user scale has risen, and the user penetration rate of patch dressings has continued to increase. According to iiMedia Consulting data, the number of light medical aesthetic users continued to grow from 2016 to 2020, reaching 15.2 million in 2020, reaching a CAGR of 52.6% from 2016 to 2020, and 23.54 million users in the mainland light medical aesthetic market in 2023, an increase of 55% over 2020. After photoelectric/injection projects, consumers usually need to wear medical masks in the morning and evening for repair, and the rapid growth of light medical aesthetic users has greatly boosted the demand for patch dressings.
Figure: The scale of light medical aesthetic users
(Source: iiMedia Consulting, Minsheng Securities)
Generation Z user preference - patch dressings have certain efficacy, and some consumers who pursue functional skin care are converted into patch dressing consumers, which promotes the further improvement of the penetration rate of consumer groups. The "Generation Z" consumer group pays attention to the efficacy and skin experience of skin care, among which the importance of efficacy accounts for 46.36% of the skin care factors purchased by "Generation Z".
Chart: Gen Z Buying Drivers
(Source: Deloitte Minsheng Securities)
On the whole, the growth rate of the entire skin care products market from 2021 to 2026 is expected to be about 10.3%, of which the growth rate of the sodium hyaluronate dressing industry is expected to be about 23%, which is still the fastest growing segment.
Second, the business evolution path: from the prefix of machinery to the prefix of makeup
From the development path of Fuerjia, it can be seen that the development path of this industry is from professional to popular, and continues to increase categories, so as to meet the more diverse needs of users.
Starting from the "Medical Sodium Hyaluronate Repair Patch", Fuerjia has evolved two major product lines: medical device products and cosmetics products.
(Figure: Revenue structure of Fuerjia)
As of 2022, the revenue of medical devices and cosmetics will be 866 million yuan and 903 million yuan respectively, accounting for 48.95% and 51.05% of the total revenue, respectively.
The first category is medical devices. Among them, the main ones are medical sodium hyaluronate repair patch (white film) and medical sodium hyaluronate repair patch (black film), and the revenue of the two products in 2022 will account for 97.5% of the revenue of medical devices;
The second category is cosmetics. Among them, the top three revenue products are Fuerjia Collagen Water Light Repair Patch, Fuerjia Astaxanthin Tranexamic Acid Repair Patch, and Fuerjia Centella Asiatica Soothing Repair Patch, and the total revenue of the three products in 2022 accounted for 73.43% of the entire cosmetics revenue.
It is worth mentioning that Fuerjia's medical device sodium hyaluronate dressing, once accounted for 90% of the revenue, from 2019, its cosmetics revenue has grown rapidly, and by the first half of 2023, the cosmetics category has surpassed medical device dressings, accounting for 54% of the revenue.
According to the prospectus, according to Frost & Sullivan's analysis report, in 2021, the sales volume of Fuerjia patch products will be the first in the market of patch professional skin care products, accounting for 15.9%, of which medical device dressing products will account for 17.5%, ranking first in the market, and functional skin care products will account for 13.5%, ranking second in the market.
From 2020 to 2022, Fuerjia's revenue will be 1.585 billion yuan, 1.650 billion yuan, and 1.769 billion yuan respectively, and the net profit will be 648 million yuan, 806 million yuan, and 847 million yuan respectively.
Chart: Brand repurchase rate
(Source: Zhiyan Consulting, Minsheng Securities)
According to Frost & Sullivan's data, in 2021, the company's patch product sales will be the first in the patch professional skin care products market, with a market share of 15.9%, of which the share of medical device dressing products will be 17.5%, also ranking first in the market, and the share of functional skin care products will be 13.5%, ranking second in the market.
3. Comparison of giants: the battle for profitability and marketing expenses
Domestic companies that take sodium hyaluronate as the entry point and make functional skin care products at the same time mainly include Fuerjia, Bethany, Bloomage Biotechnology, Freda, etc. Let's compare several leaders together to see how profitable they are.
Net profit volume and growth rate - from the perspective of net profit volume, in 22 years, Fuerjia, Bloomage Biotech, and Bethany are in the same echelon, and there is a certain gap between Freda and these four, and in the third quarter of 2023, the net profit volume of the three companies is still close. In terms of growth rate, Freda is affected by the base of business restructuring, and the other three companies have slowed down, among which the negative growth of Bloomage Biotech is the most obvious.
Chart: Growth rate of net profit volume and net profit attributable to the parent company
(来源：choice)
Cash flow quality - from the perspective of cash flow quality, among the 4 companies, Freda has a real estate business before, and the net present ratio data is relatively abnormal, and among the remaining 3 companies, the net present ratio of Fuerjia is stable at more than 1, and Bethany and Bloomage Biotech fluctuate greatly, and since 2022, the net present ratio of the two has fallen below 1.
Profitability comparison - in terms of gross profit margin, Fuerjia is relatively stable, ranking first among comparable companies in the past two years, and the net profit margin is also significantly higher than that of comparable companies. The reason for the higher net profit margin of Fuerjia is that the marketing investment is smaller than that of comparable companies, and its marketing expenditure investment was only 16% 21 years ago, but it has increased in the past two years, reaching 26%, which is much lower than Bethany (about 40%) and Bloomage Biotech (about 46%).
In 2020 and 2021, its return on equity is higher, mainly due to the light assets before the IPO, and the same is true for Bethany's higher ROE 20 years ago. Aside from the IPO factor, the ROE level of the industry is in a downward channel, mainly due to the decline in net profit margin. The decrease in net profit margin was mainly due to higher discounts and a significant increase in selling expenses.
4. Rising Star: Collagen
After hyaluronic acid, the next big item of "battleground" is undoubtedly collagen. After the hydration-based sodium hyaluronate products have gradually entered the mature stage, the recombinant collagen products that focus on repair have gradually become a new outlet in the industry, and all companies are competing for layout.
Fuerjia - In 2022, it launched the collagen water and light repair patch with the makeup brand, and the medical recombinant type III humanized collagen patch with the machine name, with good sales, and the raw materials of the latter are provided by Juyuan Biology, which belongs to the second class of machinery and has a registration certificate.
According to the 2023 interim report, its three types of recombinant type III humanized collagen products are still in the process research and development stage. In addition, as for injectable medical aesthetic products, it has been developed in cooperation with Jiangsu Juyuan, which is currently in the pilot stage, including collagen and a water light product, which is expected to be launched in 2026-2027.
Bethany – The annual report does not mention collagen-related layouts.
Bloomage Biotech - In 2022, it acquired 51% of the equity of Beijing Yierkang and entered the collagen industry. Beijing Yierkang has mastered a full set of mature zoo collagen extraction process, mainly engaged in collagen sponges. Its annual report shows that the research and development of "collagen peptide sodium hyaluronate beauty formula" has entered the industrialization stage.
Freda began to lay out collagen raw materials, and initially completed the infrastructure of the collagen medical device production base in 23 years.
From the perspective of collagen products, the earliest of the four products launched is Fuerjia, and from the overall layout progress level, Fuerjia ≈ Bloomage Biotech> Freda > Bethany.
From hyaluronic acid to collagen, the skin care market has produced many super large items in just a decade, and the industry continues to grow rapidly driven by new products.
According to Grand View Reaserch data, the global collagen market size was US$15.36 billion in 2019, with a CAGR of 6.7% from 2016 to 2019, and the market size is expected to reach US$22.62 billion in 2027, while the Chinese collagen market size is US$980 million, accounting for 6.4% of the global market, with a CAGR of 7.8% from 2016 to 2019, and it is expected that by 2027, the Chinese collagen market size will reach US$1.58 billion.
Collagen, now is the hyaluronic acid through the "from medical dressings to skin care" path, go through again, in the future, in this industry who can go further, it is worth waiting and seeing.