Red Star Capital Bureau August 30 news, Huaxi Bio (688363.SH) 2023 semi-annual report shows that the company's net profit fell for the first time since its listing in 2019, down 10.27 percent year-on-year. The Red Star Capital Bureau noted that the functional skin care products business, which accounts for more than 60% of the company's main business revenue, fell 7.56 year-on-year, and the revenue of the four brands included in this sector declined across the board.

After 2021, Huaxi Bio has successively introduced hyaluronic acid foods such as "Water Muscle Spring" and "Black Zero. In February this year, "Shuijiquan" was named by the Shanghai Consumer Protection Commission, which triggered a heated discussion on the related effects of hyaluronic acid. The semi-annual report shows that Huaxi's bio-functional food business has become the company's four major business segments, with the largest year-on-year decline in revenue.

it is worth mentioning that the sales cost rate of huaxi biology in the first half of the year exceeded 46%, which was higher than that of aimeike (300896.SZ) and haohai biotech (688366.SH), which are also known as "three swordsmen of medical beauty.

Net profit fell for the first time year-on-year

According to the financial report, Huaxi Bio's revenue in the first half of this year was about 3.076 billion yuan, up 4.77 percent from the same period last year, and its net profit was about 0.425 billion yuan, down 10.27 percent from the same period last year. Non-net profit was about 0.36 billion yuan, down 12.69 percent from the same period last year.

It is worth noting that this is the first time that Huaxi Bio has seen a decline in net profit since landing on the board in 2019.

from its four main business segments, the raw materials business and medical terminal business revenue achieved 23.20 and 63.11 respectively, with a total revenue of about 1.056 billion yuan, accounting for 34.35 of the company's main business revenue.

Functional skincare business revenue was the highest segment of Huaxi Bio's main business revenue, at 63.92 percent. In the first half of the year, the sector's revenue was 1.966 billion billion yuan, down 7.56 percent from the same period last year, and its gross profit margin was 74.49 percent, down 4.25 percentage points from the same period last year.

According to the disclosure, Huaxi Bio's functional skin care products are mainly divided into Runbaiyan, Quadi, Mibel and BM muscle live, and the revenue of the four brands fell year-on-year in the first half of the year. BM muscle activity fell the most year-on-year, by 29.62 per cent, while Run's income was the highest, at about 0.632 billion yuan, down 2.04 per cent year-on-year.

In this regard, Huaxi Bio explained that after 3-4 years of rapid growth in the company's four major brands of functional skin care products, the company took the initiative to slow down its development during the reporting period.

"in terms of operation, affected by weak consumption and conservative purchase intention of consumers, the optional consumer goods market represented by skin care products has been impacted to a certain extent. The flow dividend has slowed down and the flow cost has become higher. With the background that the internal organizational structure and operation management need to be further upgraded, the company has taken the initiative to make strategic adjustments to reduce the speed of development, resulting in a decline in the growth rate of sales revenue." Huaxi biological said.

in addition, the functional food business segment's revenue in the first half of the year was 32.9133 million yuan, down 25.8 from 44.3658 million yuan in the same period in 2022.

"Shuiji Spring" was named by Shanghai Consumer Protection Committee

As the lowest-income segment, Huaxi's bio-functional food business faces many shocks when it enters the market.

on January 7, 2021, the national health and Health Commission officially approved the application of sodium hyaluronate (hyaluronic acid) declared by Huaxi biology as a new food raw material and allowed to be used in ordinary food. Huaxi Bio relies on its own hyaluronic acid resource technology advantages, gradually listed to hyaluronic acid drinking water brand "water muscle spring" as the core of all kinds of functional food.

In 2021, Huaxi Bio has launched "Water Muscle Spring", hyaluronic acid food brand "Black Zero" and hyaluronic acid fruit drink brand "No corner". In 2022, "Water Muscle Spring" will launch a new category of "Hyaluronic Acid Soda Bubble Water" and "No Think Corner" will launch a full -2.0 "Night Hat Stay Up Essence Drink" series of 5 products.

according to the 2022 annual report of huaxi biology, the company's functional food business achieved revenue of 0.075 billion billion yuan, up 358.19 year on year.

However, in February this year, the Shanghai Municipal Consumer Protection Committee WeChat public number questioned the authenticity of the hyaluronic acid food that "eats out the water light muscle", and even asked the hyaluronic acid food chaos: does hyaluronic acid food really "eat out the water light muscle"? Who is saying that hyaluronic acid food can "eat out the water light muscle"?

The above article shows that the Shanghai Consumer Protection Commission specifically mentioned Huaxi Bio's "Water Muscle Spring" beverage and hoped that it would provide consumers with authoritative evidence to prove the effect of the beverage on skin hydration.

at that time, huaxi biology was accused of suggestive publicity and deleted the question and answer on whether oral hyaluronic acid would be digested and decomposed in the details page of "water muscle spring", which also triggered a new round of discussion on "whether oral hyaluronic acid is" IQ tax.

Sales expense rate exceeds 46%

Higher than peers

It is worth noting that Huaxi Bio's sales expenses are higher, and the sales expense rate has grown rapidly since its listing.

In the first half of this year, its sales expenses were about 1.42 billion yuan, up 2.4 percent year-on-year, accounting for 46.17 percent of the company's total revenue.

Red Star Capital Bureau pulled the annual report data since the listing of Huaxi Bio found that from 2019 to 2022, sales expenses were 0.521 billion yuan, 1.1 billion yuan, 2.436 billion yuan, 3.049 billion yuan, respectively, accounting for 27.65 percent, 41.75 percent, 49.24 percent, 47.95 percent of total revenue.

It can be seen that in 2021, Huaxi Bio's sales expenses have increased significantly, up 121.62 percent year-on-year, and the sales expense rate is nearly 50 percent. Red Star Capital Bureau noted that Huaxi Bio added 595 salespeople in 2021 alone to meet the company's sales expansion needs. At the same time, Huaxi Biology also increased its investment in the promotion of various e-commerce platforms such as Tmall and Douyin, as well as offline promotion through participation in exhibitions and activities.

In 2022, its cost of sales rate has decreased, but it is also as high as 47.95 percent. This year, the sales expense rate of Aimee (300896.SZ) and Haohai Biotech (688366.SH), which are known as "Medical Beauty Three Musketeers" with Huaxi Bio, were 8.4 percent and 31.9 percent, respectively. In the first half of 2023, 10.19 per cent and 32.06 per cent, respectively.

screenshot from Huaxi biology 2022 annual report

in the past two years, online promotion service fees have been the highest part of Huaxi biological sales expenses, accounting for more than half. Huaxi Bio mentioned that the main sales revenue of the company's functional skin care products comes from online retail.

Specifically, Huaxi Bio's online sales are mainly divided into three sections: the company's own stores, platform's own stores and authorized distributors to open stores. Among them, the platform's self-operated stores mainly include Jingdong's self-operated, Weipin, Little Red Riding Book and Hot Mom College and other e-commerce platforms to sell goods to end consumers.

on August 30, hongxing capital bureau sent an interview to huaxi biology on sales expenses, changes in business sectors and other aspects. as of the time of publication, there was no reply.