Giant Biogene: The Leader of Collagen with Huge Profits

China's Giant Biogene Holding Co Ltd launched an initial public offering (IPO) in Hong Kong, which is the first Collagen company among Hong Kong Stocks.

The high net income margin, the most striking thing about Giant Biogene Holding, has arrived at 60%, 69% and 53%, respectively, all far above Kweichow Moutai's 48%.

What kind of business can have such an amazing net margin?

Giant Bio's core product is collagen, which is the most well-known medical aesthetic product along with sodium hyaluronate (hyaluronic acid).

Hyaluronic acid, whose primary function is lubrication and moisturization, has no regenerative effect; while Collagen is primarily a skin repair and anti-aging agent that stimulates cell regeneration.

Collagen recombination, requiring sophisticated technology, has long way to commercialize.

As the first company in the industry to obtainthe patent, Giant Biogene Holdingfocused on the medical repair market in the early years, and then entered the skin care market with great success.

Key Financial Metrics

In 2021, Giant Biogene's revenuereached $1.55 billion, up 30% year-on-year; net profit was up to 830 million with net profit margin over 53%:

It’s hard to seethe net profit margin over 53% in the capital market. The net margin measures how good a business is, and the market space determines the growth of the company.

Collagen is divided into animal-derived collagen and recombinant collagen. The former hasthe lower technical threshold, but is less safe and effective than  recombinant collagen.

Currently, recombinant collagen is mainly used in efficacious skin care products, medical dressings and health care products.

Among them, skin care productshasthe largest market space to develop, which isexpected to be RMB 64.5 billionby 2027, followed bymedical dressings(nearly 25.5 billion) andskin resurfacing (12.1 billion); while there isa smaller market size for other applications.

Performance skincare will reach 55% compound growth ratefrom 2022 to 2027, higher than hyaluronic acid's 41% growth rate in the skincare segment.

Currently, Giant Biogene Holding is the market leaderamong collagen functional skin care products.

To sum up, Giant Biogene Holding is in the top position.

However, drawbacks are inevitable.The biggest question is whether it can escape from intense competition?

Possible crisis for Giant Biogene

According to the prospectus description, Giant Biogene has first-mover advantageswith global leadership in technology. However, the company did not disclose details of the thresholds and competitors.

In terms of product layout, functional skin care products do not require clinical trials and havesimilarthresholdcompared to ordinary cosmetics.It is expected that recombinant collagen technology may undergo fierce competition when it becomes widespread.

Dressings for the medical field have limited market shares despite the requirement of clinical trials.

What’s more,preparations forcombinant collagen are similarto hyaluronic acidin usage modeby injecting itinto face.The field has special threshold and promising future. But unfortunately, such products is available after 2023.

What’s need to pay attention is the terminology of “getting a license after 2023” is extremely confusing to investors. After all, 2030 is also after 2023.

This shows that Giant Biogene Holdinghave toface considerable challenges in the future. At the moment, the financialstatistics is already showing the signs.

 Giant Biogene has 2 major brands,  Comfy and Collgene, which totally contribute 92% of the revenue.

There is no essential difference in the product layout between Comfy and COLLGENE, both focusing on masks and lotions. Giant Biogene plans to occupy the skincare market with multi-brand approach.

comfy

Collgene

In terms of financials, Comfy has a compound annual average growth rate of 76% from 2019 to 2021, compared to 4.6% for COLLGENE.

Marketing expenses

In 2019, Giant Bio had a net profit margin of 60%, but dropped to 53% in just 2 years, which can be attributed toa huge amount of marketing expenses in 2021.

In 2021, Giant Bio invested $346 million in marketing, a 119% year-over-year jump,which ismuch higher than the 30% revenue growth rate.

At the same time,the ratio of marketing expenses/revenue increasedfrom 10% in 2019to 22%in 2021,surprisingly reached 27.1% in the first five months of this year.

In skin care market, whether hyaluronic acid / pharmaceutical or collagen, the ingredients are only the carrier; but the core competition is cosmetics.

It’s indispensable to pay for the marketing advertisement to make the cosmetics company bigger and stronger.

Therefore, the core of the profit of the medical beauty segmentis whether to invest huge marketing expenses.

Currently, it looks like Giant Biogene is also increasing its marketing expenses significantly. In the future, the current net margin of 53% may be hard to maintain if competition further intensifies.

Actually, even if the net profit rate is down to 20%, the collagen still has huge potential in medical aesthetics market. Not to mention that Giant Biogene Holding also received hundreds of millions of dollars of investment from High Tide Capital.

Based on the highest issued market value, Giant Biogene has only 31X P/E .

Lastly, Giant Biogene is a family business, with the founding couple and their daughter and niece as executives. In the future, it’s possible to see the daughterin charge of the company,which is not very friendly to long-term investors.