On March 26, Juzi Biotech (02367) released its 2024 annual results announcement, continuing the high-growth legend of the recombinant collagen track.

According to the financial report, Giant Biotech's revenue in 2024 will be 5.539 billion yuan and net profit will be 2.062 billion yuan, with a strong growth momentum. However, there are many hidden worries such as the old diseases of pyramid schemes, the pressure on selling prices caused by the sharp drop in raw material costs, the dependence on direct sales and the shortcomings of R&D, which may threaten the myth of "the first share of reconstituted collagen".

The profit code behind high growth and high gross profit

During the reporting period, Juzi Biotech achieved revenue of 5.539 billion yuan, a year-on-year increase of 57.2%; net profit was 2.062 billion yuan, a year-on-year increase of 42.4%; the net profit attributable to the parent company was also 2.062 billion yuan, an increase of 42.1% year-on-year; The gross profit was 4.547 billion yuan, and the gross profit margin was 82.1%.

Although the gross profit margin of 82.1% has dropped from 87.2% in 2021, it is lower than the sales gross profit margin of 94.64% of Aimeike (300896), the leader of "Medical Beauty Maotai", but it is still significantly higher than the industry average, and the annual gross profit margin of Kweichow Moutai (600519) is 91% and is in the same high gross profit camp.

As of the end of 2024, Giant Biotech's cash and cash equivalents increased to RMB4.030 billion, a year-on-year increase of 61% from RMB2.504 billion in 2023, demonstrating its financial stability.

The revenue growth of Giant Biotech was due to the expansion of product categories and channel optimization.

According to the company, in 2024, it will achieve a rapid breakthrough in sales by consolidating star products such as Kefumei collagen sticks, launching new products and strengthening online and offline marketing. By product type, the revenue of functional skin care products was 4.302 billion yuan, a year-on-year increase of 62.5%, accounting for 77.7% of the total revenue. Among them, Fumei contributed 4.542 billion yuan, a year-on-year increase of 62.9%, accounting for 82%. The revenue of medical dressings was 1.218 billion yuan, an increase of 41.5%, accounting for 22%.

The cost of sales rose to 992 million yuan from 577 million yuan in 2023, a year-on-year increase of 71.9%. This was mainly due to higher raw material procurement and logistics costs due to higher volumes.

R&D expenditure was 106 million yuan, a year-on-year increase of 42.1%, accounting for only 1.9% of revenue, supporting 188 research projects, including the patented technology of recombinant human type IV collagen (authorized by the State Intellectual Property Office in 2024).

In terms of channels, Giant Bio's products cover about 1,700 public hospitals, 3,000 private hospitals and clinics, 650 chain pharmacy brands and 6,000 CS/KA stores. Kefumei ranked 8th in the Tmall functional skin care category in the "3·8 Promotion", an increase of 5 places compared with 2023.

Frost & Sullivan predicts that China's recombinant collagen market will reach 219.38 billion yuan in 2030, with a compound annual growth rate of 44.93%. Both Giant Biotech and Jinbo Biotech (832982) have benefited from the high prosperity of the track, and the latter's net profit is expected to increase by more than 140% in 2024. However, the high proportion of Fumei exposes the risk of relying on a single brand. Behind the stellar performance, there are sustainability concerns.

The old disease of MLM: the shadow of Xi'an Maker Village

In the early days, Juzi Biotech relied on the distributor model, especially Xi'an Maker Village E-commerce Co., Ltd. (hereinafter referred to as "Xi'an Maker Village"), an affiliated company and the largest distributor before listing. From 2019 to 2021, Xi'an Maker Village contributed 52.2%, 49.3%, and 29.3% of Giant Bio's revenue respectively, and it will drop to 17.63% in 2022.

Xi'an Maker Village was founded by Yan Jianya, the founder of Giant Biotech, with an investment of 80 million yuan in 2015 and a capital of 20 million yuan from Giant Biotech, and was later transferred to Ma Xiaoxuan (who was the general manager of Giant Biotech until 2019) and Zhang Bing (who served as a director from 2009 to 2020) in 2017, and the relationship was terminated in May 2020.

According to public reports, its "Maker Cloud Business" platform adopts a hierarchical agency model: pay 12,000 yuan to become a maker, enjoy a 3.5% discount on the price of goods, and get a commission of 2,400 yuan for attracting new customers, and high-level sales commissions can be drawn offline.

Xi'an Maker Village Industrial and Commercial Information (source: Qichacha).

This model is similar to micro-business and MLM. "Market Capitalization" reported that Kelijin's products were marked as "suspected of pyramid schemes" more than 5,000 times on a financial risk inquiry platform. "Jingguan Health" also pointed out that social platforms are flooded with purchasing agents, such as the 85 yuan/box of Kefumei mask is far lower than the official price of 174 yuan, and the supply mostly comes from dealers at low prices.

The giant creatures also know this.

In the prospectus, Juzi Biotech clarified in nearly one page that the business of Xi'an Maker Village "does not meet the conditions for pyramid selling", and its distribution model is in line with legal operation and does not violate the "Regulations on the Prohibition of Pyramid Selling". The company emphasized that it has reduced dependence through rectification, and terminated the cooperation of 66 dealers from 2019 to 2021. For example, Chongqing Qianwang Medical was fined 50,000 yuan for low-price shipments and limited supply, but did not disclose the specific results.

According to public information, Juzi Biotech also cooperated with the micro-business giant Wansecheng in the early days, and the two sides were deeply bound from 2013 to 2016, and after the failure of the IPO (initial public offering) of Wansecheng, a large number of shopkeepers switched to Xi'an Maker Village, which indirectly boosted its expansion.

Direct sales dependencies and pricing compliance disputes

The single large customer of the affiliated company and the quasi-MLM model helped Juzi Biotech to increase its volume quickly, but it disrupted the price system, and the risk of counterfeit goods was frequent. Juzi Biotech launched a UDI identification and tracking system to deal with counterfeiting, but the chaos of purchasing agents has not been cured. This forced the company to turn to a direct sales model in an effort to reinvent channel control.

Since 2022, Giant Biotech has turned to direct sales (DTC). In 2024, direct sales channels will account for nearly 70% (about 68%), through DTC stores such as Tmall, JD.com (JD), and Douyin.

However, at the same time, the sales and distribution expenses of Giant Biotech also surged from 1.164 billion yuan in 2023 to 2.008 billion yuan in 2024, a year-on-year increase of 72.51%, higher than the revenue growth rate of 57.2%; The expense ratio of 36.26% is still lower than the industry average of 45%-50%. However, although the DTC transformation has reduced the risk of dealers, due to the sharp increase in online marketing investment, the net profit margin has fallen from 60.1% in 2019 to 37.2% in 2024, which is further and further away from the peak of 69.42% in 2020.

Changes in sales and distribution expenses of Giant Biotech (source: Choice data).

Changes in the net profit margin of Giant Biotech (source: Choice data).

According to a report by China Business Daily, there is a significant price difference between the direct salesmen of Giant Bio. Agents supply at discounted prices (e.g. lower than the official price), similar to the Xi'an Maker Village model, and consumers report confusion in pricing. The Company did not provide a clear response to pricing and sales compliance issues. At the regulatory level, it is legal to be a Class II medical device in the United States, but in 2020, the State Food and Drug Administration banned it from being called a "mask". Its propaganda wanders in a gray area, and the future regulation will become stricter or increase risks.

The

cost of raw materials and competing products have impacted, and there has been no progress in "obtaining certificates" for medical cosmetology

Recombinant collagen is the core competitiveness of Giant Bio, but the decline in raw material costs is shaking its high pricing advantage.

In August 2024, Hangzhou Meiliu Biotech reduced the cost of type III recombinant collagen from 80,000 yuan/kg to 10,000 yuan/kg, and completed an angel round of financing, planning mass production to reduce the procurement cost of downstream enterprises. This trend could have a serious impact on the pricing system of the recombinant collagen market. Giant Bio's Fumei 178 yuan/box (5 pieces) brings high gross profit. If the price of raw materials continues to fall, it threatens the stability of more than eighty percent of its income.

Competitors are also accelerating their layout. L'Oreal, Opalai, Marubeni Biotech (603983), Proya (603605), Bloomage Biotech (688363), Naturetang, Yuze, and Fan Wenhua launched recombinant collagen masks and creams, and the domestic brand Fermented Color released the first recombinant collagen lipstick in China.

Recombinant collagen has great potential in the field of medical aesthetics, and the market is optimistic about its filler prospects. The slogan of "entering medical aesthetics" has been shouted for several years, and it has announced that it has four Class III recombinant collagen injections in reserve, two of which are expected to be approved in the second quarter of 2024, but there has been no progress so far. Investors frequently urged the forum to "get the certificate quickly".

In contrast, Jinbo Biotech's two Class III collagen injections have been approved to seize the opportunity, Jiangsu Wuzhong (600200) "Infant Fuyuan" was listed, and Haohai Biotech (688326) cross-linked collagen entered the registration inspection. Juzi Biotech has not responded to the price reduction plan for the time being, and its technological leadership may be diluted. The unrealized potential of recombinant collagen in the field of aesthetic medicine has become another concern.

Juzi Bio relies on Fumei collagen stick products to support its performance, but it is positioned to repair problematic muscles and has a narrow audience. Compared with the popularity advantage of Proya Ruby Cream (4 million pieces) and Han Shu Red Man Waist (15 million pieces), its growth space is limited.

The R&D revenue ratio of 1.9% is much lower than that of Bloomage Biotech (6%) and Aimeike's (8%). Although new patents such as recombinant human type IV collagen have been approved, it is difficult to convert them into profits in the short term. The capacity expansion plan (34 million pieces of skin care products, 212.5 tons of collagen, and 267.8 tons of ginsenosides) is ambitious, but the utilization rate of functional foods is only 10%, and the market's digestion capacity is questionable.

Changes in R&D expenses of Giant Biotech (source: Choice data).

In addition, most of the company's core patents were approved from 2005 to 2013. Kefumei (launched in 2011) and Kelijin (launched in 2009) accounted for 97.2% of revenue, with a history of more than 10 years, and new product innovation is weak. In contrast, Bloomage Biotech will launch a variety of collagen products in 2022, and Fuerjia (market share of 10.1%) will closely follow the medical dressing market, and the competitive pressure of Giant Biotech will intensify.

These shortcomings may weaken the ability of giant creatures to cope with external pressures.

Wei Ya's shareholder identity: the shadow under the halo

In 2021, Wei Ya and his wife will hold 0.84% of the shares through Qingdao Qianmeow Fund, a subsidiary of Qianxun Culture. In 2021, Qianxun Culture will invest 168 million yuan. Since then, Hillhouse (4.99%, 967 million yuan), CITIC (4.33%, 838 million yuan) and other capitals have followed suit, and the pre-IPO valuation of Giant Biotech has reached 19.3 billion yuan.

On November 4, 2022, the listed market value of Giant Biotech was HK$26.476 billion, and the floating profit of Weiya Investment was about 37 million yuan, and by March 27, 2025, the market value of Giant Biotech was about HK$70 billion, and the market value of this part of Weiya's holdings was HK$588 million, with a floating profit of more than 400 million yuan.

In 2024's "Double 11", Weiya's live broadcast has helped the turnover of Kefumei exceed 100 million yuan in 13 minutes, establishing the Top1 position of Tmall Ali's health category dressing brand. The relationship between Wei Ya and his wife and the capital and channels of Juzi Biotech is becoming more and more You have me, I have you.

However, Wei Ya was fined 1.341 billion yuan for tax evasion in 2021, and her live broadcast career suffered a setback. Whether the decline in its influence will drag down the reputation of Juzi Bio's e-commerce channel is still worth the company's consideration.