Text: Pan Yan

Among the hot ingredient ingredients in 2024, recombinant collagen must occupy a place.

According to Frost & Sullivan data, the market share of collagen will surpass hyaluronic acid to become the largest raw material ingredient in skin care products in 2025, and the market size of recombinant collagen in China is expected to reach 108.3 billion yuan in 2027.

In fact, since the "first strand of recombinant collagen" Giant Bio (02367. HK) successfully rang the bell of the Hong Kong Stock Exchange in November 2022, and the cost of the raw material has attracted much attention from the industry.

From 2021 to 2023, the compound annual growth rate of revenue of Giant Biotech will reach 50.58%, and the compound annual growth rate of attributable net profit will reach 33.97%. In the first half of 2024, Giant Biotech increased by 56.37% year-on-year to 2.525 billion yuan, and attributable net profit increased by 47.41% year-on-year to 983 million yuan.

However, under the appearance of soaring performance, it hides the embarrassing status quo of slowing down the growth rate of the big brands of Giant Biotech, the sharp decline in net profit margin, and the difficulty of innovating the curve.

Marketing doubles to eat into profit margins

Based on recombinant collagen technology, since its establishment, Juzi Biotech has successively incubated 8 major brands, including Kefumei, Kelijin, Kepre, Kezhi, Kefuping, Meiyume, SKIGIN and Ginseng, involving three major fields: functional skin care products, medical dressings and functional foods.

As the first two major brands created by Giant Biotech, Kelijin and Fumei accounted for more than 9% of the total revenue. It's just that in recent years, the revenue growth of Juzi Biotech has almost been driven by Fumei, and Kelijin's contribution is weakening.

In the first half of 2024, the proportion of Fumei's revenue increased by 5.1 percentage points year-on-year to 81.5%, compared with only 30.3% in 2019. In contrast, from 2019 to the first half of 2024, the revenue proportion of mid-to-high-end functional skin care brand Kelijin decreased from 50.3% to 15.6%.

Behind the decline in sales of Kelijin is the result of years of channel reform of Juzi Biotech, which is highly dependent on dealer channels in the early stage of development.

Taking the data of 2019 at its peak as an example, Kelijin once carried half of the country of Juzi Biotech, but 6% of the brand's revenue came from dealer customers, of which 5% came from the large customer Xi'an Chuangke Village E-commerce Co., Ltd. (hereinafter referred to as Xi'an Chuangke Village).

It is understood that Xi'an Maker Village was founded by Yan Jianya, one of the founders of Giant Biotech, which mainly sells Kelijin-based brands of Juzi Biotech through its self-built mobile social platform "Maker Cloud Business", excluding Kefumei.

Previously, the maker cloud business was questioned by the media because of its "hierarchical agency" marketing model, and it was suspected of being a pyramid scheme micro-business. Although the maker cloud business refers to it as a "membership" mechanism, consumers can join the "maker" team to become a distributor after participating in training after becoming a member. However, the marketing logic of membership, discounting the price, and pulling people to take a commission is similar to the micro-business sales network.

With the implementation of the "E-commerce Law" in 2019, the micro-business industry, which has been questioned by MLM, has started a major reshuffle, and representatives of domestic beauty micro-businesses dominated by Kelijin, Han Shu, and Pechoin have had to make drastic channel adjustments.

Like other peers, Giant Biotech began to tap the potential of online direct sales channels based on the DTC model (direct-to-consumer), and enhanced the influence of the C-end brand through head anchors, KOL planting, celebrity endorsements, etc.

According to the data of the first half of 2024, the proportion of revenue from Giant Bio's distributor channels has dropped to 31.3%, while the proportion of revenue from online direct sales channels has increased to 69.7%.

During this period, the sales and distribution expenses of Giant Biotech increased, with the sales and distribution expense ratio increasing from 9.80% in 2019 to 33.04% in 2023, and further increasing to 35.11% in the first half of 2024.

It is worth mentioning that the net funds raised by Juzi Biotech in its IPO in 2022 were HK$574 million, of which HK$264 million was used to enhance the channel network and marketing work. According to the 2024 interim report, this part of the fundraising has been used up during the reporting period.

In the future, the marketing pressure of Giant Biotech will be further expanded. From 2021 to 2023 and the first half of 2024, the net profit margin of Giant Biotech will be 53.34%, 42.36%, 41.09% and 38.33% respectively.

Light R&D is difficult to support high premiums

After the channel change, Kefumei, which superimposed marketing buffs, gradually replaced Kelijin as the new growth engine of Giant Biotech, and the proportion of about 8% of revenue implied that Giant Biotech's "big brand dependence" is intensifying.

It is worth mentioning that Kelijin is a brand established in 2009, and Fumei is a brand established in 2011. From 2015 to 2019, Giant Biotech has successively launched 6 brands in the fields of skin care and health food.

From the perspective of revenue structure, in the first half of 2024, the revenue of other brands of skin care of Juzi Bio will account for 2.6%, and the revenue of health food and other brands will account for 0.3%, with a total of less than 3%. It can be seen that in the past ten years, Giant Bio has not been able to create a new curve comparable to that of Fumei and Kelijin.

It can be seen from the Double 11 activities on various platforms in 2024 that Fumei has taken the limelight and invested heavily to bind a number of head anchors and vigorously promote its secondary products. Taking Li Jiaqi's live broadcast room as an example, at first 100,000 sets were sold out, and under the condition of repeatedly emphasizing that the stock of Fumei is limited, the goods were increased to 300,000 sets, and then increased to 500,000 sets, 800,000 sets, and 1 million sets in a few days.

What's even more worrying is that at the moment when Kelijin is gradually declining, the routine of Fumei driving high growth in performance through smashing marketing is also failing. From 2021 to 2023 and the first half of 2024, the revenue growth rate of Fumei will be 113.07%, 79.68%, 72.86% and 68.61% respectively, with a significant slowdown trend.

In fact, Kefumei is facing similar problems to many brands that have made their fortune through medical dressing masks such as Fuerjia, and after making a name for themselves, the logic of entering the functional skin care product market through "high price" continues to be questioned by the market.

In the first half of 2024, the gross profit margin of Juzi Biotech is as high as 82.40%, and the high gross profit far exceeds that of many peers, which is also due to the ultra-high premium of its brand products.

In the flagship store of Kefumei Tmall, a box of 5-piece recombinant collagen dressing medical mask has a daily price of 188 yuan/box, compared with Fuerjia, which also has a gross profit margin of more than 80%, a box of 5-piece recombinant type III humanized collagen medical mask has a daily price of 134 yuan/box.

Regarding the high pricing of the brands under Giant Bio, some industry insiders said that the core ingredient of the raw material used by Giant Bio is recombinant collagen, and it is the first skin care product company to use this ingredient, so the price of the product is higher.

In the first half of 2024, the cost of raw materials accounted for about 12.36% of total revenue. Based on this calculation, the raw material cost of 1 piece of Fumei recombinant collagen dressing mask with a daily price of 37.6 yuan is only 4.51 yuan.

It is unknown the reasonableness of the high gross profit and high premium of the brand products of Giant Biotech, but its light R&D model has attracted the attention of the market.

Looking through the previous R&D data, it can be found that the R&D cost of Juzi Biotech has never exceeded 100 million yuan. From 2019 to 2023, the R&D expense ratio of Giant Biotech increased from 1.19% to 2.13%, and then decreased to 1.91% in the first half of 2024.

The "three certificates of machinery" are far away

Although the R&D investment is not outstanding, as of the end of June 2024, Giant Biotech still has 100 research projects in progress, and is advancing the R&D and registration of a number of recombinant collagen skin rejuvenation products.

The reason why recombinant collagen skin rejuvenation products are highlighted is that Giant Bio is combining its own advantages in the collagen market and plans to enter the collagen market for medical beauty injections, which is also regarded by the industry as the "second curve" created by Giant Bio for itself.

Previously, Juzi Biotech had revealed in the prospectus that the company has 4 types of skin rejuvenation products for Class III medical devices that are being developed and promoted, of which 2 products, recombinant collagen liquid preparation and recombinant collagen solid preparation, are expected to be approved for certification in the first quarter of 2024, and the remaining recombinant collagen gel and skin rejuvenation products are expected to be approved for certification in the first half of 2025.

Although it is poised to take off in the field of medical aesthetic injections, Juzi Biotech has been unable to show its skills due to the delay in obtaining the registration certificate of Class III medical devices.

It is understood that the "three types of medical devices" are medical devices that can be used for intradermal dermal injection and filling, compared with the "two machine" products used for dressings, dressings, gels and other "machine three" products, the "machine three" products are limited by a higher technical threshold and a more stringent approval process.

As a result, the two "Machinery Three" products, which were originally planned to be certified in the first quarter of 2024, were finally mentioned in the 2024 semi-annual report with "We continue to promote the clinical application of recombinant collagen skin rejuvenation products", and postponed this time to the first quarter of 2025 at the interim results meeting in August 2024.

Looking at the industry, the collagen filler products that have been approved in China are mainly from four manufacturers, namely Shuangmei in Taiwan, Changchun Botai, Hanfu in the Netherlands, and Jinbo Biotechnology (832982. BJ）。 Among them, the first three are animal-derived collagen, while Jinbo Biotech has pioneered the development of humanized collagen that is more suitable for human injection.

In June 2021, the "Recombinant Type III Humanized Collagen Freeze-Dried Fiber" (trade name: Wei Yimei) applied for by Jinbo Biotech was officially approved by the Food and Drug Administration, becoming the first and only recombinant humanized collagen in China. In August 2023, Jinbo Biotech was approved for another "Recombinant Type III Humanized Collagen Solution for Injection".

With the advantage of technical barriers, Jinbo Biotech's gross profit margin is also surprisingly high and still rising, and has increased to a high of 92.37% in the third quarter of 2024, far exceeding many peers.

With the success of Jinbo Biotech in front, in the face of the "three certificates" that are still scarce in the recombinant protein market, many companies are accelerating the acquisition of certificates.

In addition to the giant creatures, it also includes Fuerjia (301371. SZ), Bloomage Biotech (688363. SH), the creation of medical (873474. NQ) and many other companies have set foot in the field of recombinant collagen medical aesthetics, and have gradually entered the registration and declaration stage of Class III medical devices.

Such as deep binding Bethany (300957. SZ) has a faster process of Innovative Healthcare, which may be earlier than Giant Biotech obtains the registration certificate. According to the 6 types of recombinant collagen products under development disclosed in Neo-Health's announcement in September 2024, 2 products are in the registration application and are expected to be approved by the end of 2024 and the first half of 2025 respectively.

In addition, Fuerjia, which made a fortune with medical device dressings, chose to directly hit the field of humanized collagen of Jinbo Biotech. In the announcement in September 2024, Fuerjia revealed that the clinical trial filing of the company's product under development "recombinant type III humanized collagen freeze-dried fiber" has been completed, and clinical trials will be started.

There is no doubt that the recombinant collagen track is in full swing, and many leading companies are actively deploying. For the future, Giant Biotech still needs to think a lot, and this is not a problem that can be solved in a few shopping seasons.