21st Century Business Herald reporter Lei Chen reporting from Beijing

"medical and beauty giant" huaxi biology (688363.SH) handed over his 2023 report card, and the functional skin care business continued to "drag its feet".

On the evening of February 28, Huaxi Bio released a performance bulletin. In 2023, the total operating income was 6.081 billion yuan, down 4.37 percent year-on-year; the net profit attributable to the parent was 0.587 billion yuan, down 39.5 percent year-on-year; and the net profit deducted from the parent was 0.487 billion yuan, down 42.85 percent year-on-year.

This is the first time in the company's annual report since its listing in 2019 that revenue and attributable net profit have declined at the same time.

"Internal management changes have led to a reduction in the skincare business." On February 29, a person close to Huaxi Biology told the 21st Century Business Herald that the company will explain the development strategy and further adjustment measures in detail when the annual report is officially disclosed.

Functional skincare products "drag"

The market is not surprised by this report card. Financial data show that since the second half of 2023, Huaxi biological revenue has declined. In the first half of 2023, the total revenue was 3.076 billion billion yuan, up 4.77 percent year-on-year; in the third quarter, the revenue was 1.146 billion billion yuan, down 17.26 percent year-on-year.

In terms of profit, in the first half of 2023, the company achieved a net profit of 0.425 billion yuan, down 10.27 percent year-on-year; in the third quarter, the net profit of the parent was about 0.09 billion yuan, down 56.03 percent year-on-year.

In the first three quarters of 2023, revenue was 4.221 billion yuan, down 2.29 percent from the same period last year; net profit attributable to the parent company was about 0.514 billion yuan, down 24.07 percent from the same period last year. According to the performance report, Huaxi Bio achieved revenue of about 1.86 billion yuan in the fourth quarter and its net profit was 0.073 billion yuan.

Huaxi Biology said in its announcement on February 28 that the decline in net profit attributable to the parent was mainly due to the decline in the company's operating income and comprehensive gross profit margin.

Regarding the decline in revenue, Huaxi Bio said that it was mainly due to the periodic decline in the functional skin care business, which accounts for the largest proportion of the company's total operating income. The decline in profit was mainly due to the decline in total operating income and consolidated gross margin, as well as the increase in expenses such as depreciation and amortization due to the larger investment in the previous period.

Public information shows that Huaxi Bio's business scope mainly includes raw materials business, medical terminal business, functional skin care products business and functional food business. In recent years, functional skin care products have made outstanding contributions to Huaxi's biological performance and occupy a pillar position in its business structure.

From the perspective of the performance composition in 2023, Huaxi's biological raw material business still achieved steady growth, the medical terminal business maintained rapid growth, and the functional skin care product business experienced a phased decline, while functional skin care products accounted for the largest proportion of the company's total operating income., Resulting in a slight decrease in total operating income year-on-year.

an industry insider told reporters that Huaxi Bio's functional skin care business developed at a high speed with its active marketing strategy. However, as the head anchor it relied on faded out of public view and the complex changes in the market environment were superimposed, the development of the business declined.

In the first half of this year, the revenue of functional skin care products business accounted for 63.92, with revenue of 1.966 billion billion yuan, down 7.56 percent from the same period last year, and gross profit margin of 74.49 percent, down 4.25 percentage points from the same period last year.

Sales of major brands under the functional skincare business all declined.

Among them, Runbaiyan realized revenue of 0.632 billion yuan, down 2.04 year on year. Quadi realized revenue of 0.543 billion yuan, down 10.1 year on year. Mibel realized revenue of 0.217 billion yuan, down 16.81 percent year on year. BM muscle live revenue was 0.341 billion yuan, down 29.62 percent year on year.

Huaxi Bio once explained in the semi-annual report that "affected by weak consumption and conservative consumer purchase intentions, the optional consumer goods market represented by skin care products has been impacted to a certain extent, and 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 sales revenue growth."

Strategic adjustment is on the horizon

People close to Huaxi Biology told the 21st Century Business Herald that the company will explain in detail the development strategy and further adjustment measures of the functional skin care product business when the annual report is officially disclosed.

Huaxi Biology pointed out in the performance bulletin that the company continued to promote the "four-wheel drive" business layout, actively got rid of the path dependence of past success, and continued to promote the overall upgrading and landing of management changes.

"Management change is an inevitable move for the company to promote strategic upgrades and achieve long-term steady business growth, but it has different short-term impacts on each business due to differences in the competitive environment, development stage and development model of each business." The company claims.

Last year, the company's four major brands of functional skin care products continued to update and iterate. In the third quarter, Run Baiyan, Quadi, Mibeil and BM Muscle Live launched a series of products such as white gauze sub-throwing 2.0, blue sub-throwing 2.0, face-changing repair cream and Yanneng essence water.

Caixin Securities analysts have pointed out that after combing the internal management mechanism and adjusting the strategic deployment, Huaxi Bio's temporary pressure on functional skin care business may return to the growth curve.

In addition to the "right remedy" for the functional skin care business, synthetic biology will remain the focus of Huaxi Bio.

the company mentioned in the performance bulletin that it will continue to focus on synthetic biology, adhere to the overall positioning of biotechnology companies and biomaterials companies, use scientific and technological power to build product power, shape brand power, and further increase cost reduction and efficiency, so as to promote the sustained, stable and healthy growth of the company's business.

In terms of research and development, Huaxi Bio's research and development expenses in the first three quarters of 2023 were 0.277 billion yuan, basically the same as last year, accounting for about 6.56 per cent of total revenue.

With the support of the synthetic biology research and development platform or the pilot test results transformation platform, Huaxi Bio launched a total of 4 new bioactive raw materials in the first half of last year: BioyouthTM-EGTPure ultra-pure ergothioneine, HybloomTM Microtrue, and UltraHA.®-CWS sodium hyaluronate (cold water instant), GabarelaxTM-UP (upgrade) GABA.

Huaxi Biology has built the world's largest synthetic biological pilot transformation platform, planned 64 pilot production lines, and has put more than 30 into use. The company said that it will continue to promote the listing of new raw material products and implement the strategic layout of synthetic biology.