Huaxi creature, the "first share of hyaluronic acid" that was once added to its halo, has lost its color.

on February 28, huaxi biology released its 2023 performance bulletin, with a rare decline in revenue and net profit. This is the worst report card handed over by Huaxi since its listing, and the unanimous evaluation given by the industry is "expected".

two or three years ago, with the price of hyaluronic acid raw materials falling all the way, huaxi bio-hyaluronic acid business showed weakness, while the company's functional skin care business, which accounts for the largest proportion of revenue, also fell endlessly.

feeling the "chill" of the market, huaxi biology has been looking for new growth points. the hot track of recombinant collagen and synthetic biology has attracted huaxi biology to make a big bet. can the "new story" bring new hope to the "first share of hyaluronic acid"?

● Li Jie, reporter of Nanfang Daily

The first major business sector "dragging its feet"

The performance bulletin shows that Huaxi Bio achieved operating income of 6.081 billion yuan in 2023, a year-on-year decrease of 4.37; the net profit attributable to the parent was about 0.587 billion yuan, a year-on-year decrease of 39.5; the net profit attributable to the parent after deducting non-recurring gains and losses was 0.487 billion yuan. A year-on-year decrease of 42.85; the weighted average return on net assets was 8.26, a sharp drop of 7.49 percentage points.

The analysis of cosmetics industry observation experts pointed out that the performance of functional skin care products in Huaxi Bio's largest business segment has declined significantly, which is the main reason for the company's performance changes last year.

The functional skincare business is already showing signs of weakness in the first half of 2023. According to the 2023 semi-annual report, in the first half of the year, its functional skin care business accounted for 63.92 of the company's main business income, 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.

According to the data, Huaxi Bio's main business covers four major business segments: bioactive raw materials, medical terminals, functional skin care products, and functional foods. Among them, the functional skin care industry has contributed the most. In 2018, Huaxi Bio's functional skin care business revenue increased from 0.29 billion yuan to 4.607 billion yuan by 2022. From 2018 to 2021, the functional skin care business revenue doubled, which contributed to the rise of Huaxi Bio.

In addition to the big drop in performance, Huaxi Bio's share price has also fallen again and again. In July 2021, Huaxi Bio's share price hit an all-time high of 314.99 yuan per share, with its market value once exceeding 140 billion yuan. Since 2023, the stock price has fallen by more than 50%. According to preliminary estimates, as of February 29, Huaxi Bio's total market value was 30.79 billion yuan, a decrease of 49.72 per cent in the past year.

The Hyaluronic Acid That Can't Sell

with the "Yan value economy" hot, Huaxi biology, which started with hyaluronic acid raw materials, has been pushed to the altar.

July 2021 market value of more than 100 billion yuan, almost all securities analysis are emphasizing the "moat" of Huaxi bio-raw materials technology, more than 70% of the comprehensive gross margin spike many medical and American middle and lower reaches of the company. However, after reaching the peak of market value in 2021, the situation has taken a sharp turn for the worse. In less than half a year, half of the market value of Huaxi Bio has fallen.

One reason is that the raw materials business is getting harder. Wind data shows that from 2016 to 2021, the revenue share of Huaxi bio-raw materials products has been declining. Previously, Huaxi Bio disclosed in its prospectus that from 2017 to 2019, the unit price of hyaluronic acid raw material products fell from 122.62 yuan/g to 111.69 yuan/g, an average annual decline of about 5%.

about two years ago, ling peixue, inventor of hyaluronic acid fermentation method, said bluntly that the price of hyaluronic acid raw materials has been decreasing for nearly ten years. he believed that the current global demand for raw materials would not exceed 1000 tons. By the end of 2021, Huaxi Bio's overall hyaluronic acid production capacity has reached 470 tons, almost meeting nearly half of the global hyaluronic acid market demand.

Attempting to transform Huaxi Creature has extended its tentacles to food. In the year when the market value broke 100 billion yuan, the National Health Commission formally approved the request for sodium hyaluronate (hyaluronic acid, commonly known as "hyaluronic acid", HA) declared by Huaxi Biology (688363.SH) as a new food raw material, allowing it to be added to ordinary food.

huaxi biology immediately extended hyaluronic acid business to the field of oral beauty products, and launched hyaluronic acid water brand "shuijiquan", hyaluronic acid food brand "black zero" and hyaluronic acid fruit drink brand "no way to corner". But the functional food business is facing the "IQ tax" controversy. Ruan Guangfeng, director of the Science and Technology Department of the Food and Nutrition Information Exchange Center, once said that oral hyaluronic acid cannot be directly absorbed by the human body, and the human body can synthesize hyaluronic acid itself. Drinking hyaluronic acid water can add water to the human body, but it is the same for you to drink cold and white. The financial report shows that functional foods are only less than 1% of Huaxi Bio's overall performance contribution in 2021. The business has maintained double-digit growth in 2023, but it has always accounted for a small proportion of the group. It also proves from the side that this is not necessarily a good business.

Industry insiders believe that deep binding of hyaluronic acid also "limits" the further development of Huaxi biology, that is, when consumers no longer pay for hyaluronic acid, the performance of product lines relying on hyaluronic acid will collapse, which is the choice of the market. Huaxi Bio urgently needs a new high-growth business to absorb the high valuation (the price continues to stay at a higher position).

The "New Story" of Recombinant Collagen

After a round of playing tickets, Huaxi Bio realized that in order to regain its peak state, its core is to return to the professional field and create a new moat.

in response to the decline in performance, huaxi biology also put forward a solution in the announcement: the company will continue to focus on synthetic biology, adhere to the overall positioning of biotechnology companies and biomaterials companies, build product strength with scientific and technological strength, shape brand strength, further increase cost reduction and efficiency enhancement, and promote the sustained, stable and healthy growth of the company's business.

In the past year, Huaxi Bio has a wide range of scientific research fields such as synthetic biology. In April 2022, Huaxi Bio acquired a 51% stake in Beijing Yierkang Bioengineering Co., Ltd. and officially entered the collagen industry. At the end of August 2022, collagen raw material products will be released, including animal-derived collagen, recombinant human-derived collagen, hydrolyzed collagen (peptide), etc.

at the second recombinant collagen anti-aging forum in 2022, professor Chen hongxiang, a researcher at the skin biology research center of Massachusetts general hospital, Harvard medical school, revealed several sets of data: the global collagen market size in 2020 is 15.7 billion us dollars, and in the same year, the Chinese collagen market size is 1.01 billion us dollars. In terms of output, global collagen production is 31580 tons, while China's collagen production is 2000 tons, and China's collagen production is expected to grow at a compound rate of 6.54. It is estimated that by 2027, China's collagen production will reach 3070 tons.

the heat of recombinant collagen and synthetic biology track has also attracted Huaxi Bio's heavy "bet". Huaxi Bio expects to expand the "second growth curve" and open up new growth points by telling a "new story" beyond hyaluronic acid. In the 2023 semi-annual report, Huaxi Bio defined itself as a "biotechnology company driven by synthetic biotechnology innovation", showing that synthetic biology is becoming its focus.

"In the future, Huaxi Biology will continue to increase its investment and research and development in the field of synthetic biology, promote the continuous innovation and application of synthetic biotechnology, and provide consumers with more high-quality and innovative products and services." Huaxi biological said.