IPO Preview | Shengbella Flower to create a unicorn in the industry with a market value of 770 million, is it worth it?

High-end postpartum care center brand - Saint Bella has taken a crucial step towards listing in Hong Kong. More precisely, Beacon International officially listed in Hong Kong under the name of Saint Bella Group.

According to the Wise Finance APP, the Hong Kong Stock Exchange disclosed on June 25th that SAINT BELLA INC. has submitted an application for listing on the main board of the Hong Kong Stock Exchange. The prospectus shows that in 2023, Saint Bella is the largest comprehensive family care brand group in China based on revenue, with business covering postpartum care centers (including postpartum care and postpartum recovery services), home care services, functional foods for women's health, etc. Among them, the postpartum care business under the brands Saint Bella, Bella ISLA, and baby bella owns 59 high-end postpartum care centers.

In terms of performance, the sales revenue in 2021, 2022, and 2023 is approximately RMB 390 million, RMB 589 million, and RMB 775 million respectively, achieving revenues of approximately RMB 259 million, RMB 472 million, and RMB 560 million, with a compound annual growth rate of 47%. However, behind the rapid growth in business scale, Saint Bella Group's profitability continues to be under pressure, with a cumulative net loss of RMB 770 million over the past 3 years.

After Saint Bella Group submitted its application, the market had some reservations about its performance losses, sparking various discussions. Questions such as whether high-end postpartum care centers are a good business and whether they can create a profitable investment target for secondary market investors after listing need to be answered. To address these questions, it is necessary to analyze why Saint Bella is experiencing losses.

High labor costs of 280 million: Defining industry service standards

According to the Wise Finance APP, although postpartum confinement has been a tradition in China since ancient times, the mainland postpartum care center industry has only developed for over 20 years, with the market in the nurturing stage. According to a Frost & Sullivan report, in 2023, the penetration rate of postpartum care services in mainland China is 16.2%, with the penetration rate of postpartum care centers at 5.5%. In comparison, the penetration rates of postpartum care services in South Korea and Taiwan are approximately 60%. Even so, there was a company, Aide Palace (00286), that backdoor listed in Hong Kong, with net profits from 2020 to 2023 being -HKD 383 million, HKD 35 million, -HKD 178 million, and -HKD 177 million, accumulating losses of over HKD 700 million in the past 4 years.

It is worth noting that these enterprises that dare to "eat the crab" have opened up a typical blue ocean market with losses, and Saint Bella Group is also one of them, and may become the ultimate winner. In the view of the Wise Finance APP, the reason why Saint Bella Group can take the lead in the subdivision track of family care is through professional, standardized, digitalized, and customized services, redefining and changing modern family care, and building unique competitive advantages.

Interpreting Saint Bella Group's development concept, professionalism is the first priority in building its brand strength, and the first priority of professionalism is the professionalism of employees. As family care service operations are labor-intensive, in 2023, the total number of employees in Saint Bella Group reached 1,229, with nursing staff reaching 696, accounting for 56.6%, making it the brand with the largest number of nursing staff in the industry From 2021 to 2023, Shengbella Group has invested a total of 280 million yuan in labor costs. In 2023, labor costs accounted for 34.3% of the total sales costs. Such a high proportion of service personnel and cost-free investment have shaped Shengbella's service system.

With the support of a professional team, Shengbella Group continues to innovate the maternal and child care model of its postpartum care centers. Public information shows that at Shengbella postpartum care centers, each mother and baby pair is equipped with 2 full-time caregivers who rotate shifts to provide personalized care services 24 hours a day. Xiaobella postpartum care centers provide multiple care models, allowing customers to choose between a 24-hour mother and baby care model or a combination of 12 hours of one-on-one care during the day and 12 hours of baby care at night. The women's full-cycle care brand Bella Isla focuses on women's postpartum mental health.

Shengbella Group has also taken the lead in collaborating with the American Certification Institute (ACI) and doctoral experts to establish maternal and child care service standards and provide systematic training for care experts. Currently, Shengbella Group has set service benchmarks and established Standard Operating Procedures (SOP) for maternal and child care. All postpartum care centers under the group follow the SOP, covering the main business processes of postpartum care centers, including detailed division of labor, maternal and child care procedures, sales, and marketing. The promotion of SOP has improved business scalability and strengthened quality control, ensuring consistent service quality.

Therefore, nearly 300 million yuan spent on caregiver training and system building has helped Shengbella create a high-quality service standard, establish a moat of professional care capabilities, and fundamentally widen the gap between Shengbella and its peers.

30 million R&D expenses: Digitally Empowering Operational Efficiency

In addition to having a professional team of care experts, Shengbella Group seems to have a persistent commitment to digitalization and standardization in the home care industry. According to the prospectus, as of 2023, Shengbella Group's R&D team consists of 38 employees, most of whom are IT personnel. From 2021 to 2023, the company's cumulative R&D expenses exceeded 30 million yuan, a rare scale of investment for a service-oriented company.

Where did all this money go?

The prospectus shows that Shengbella Group independently developed a set of industry service SAAS and care service platforms, which, although costly, will bring long-term benefits. It is reported that Shengbella's care service platform is deployed across the postpartum care center network and will continue to regularly update and improve service processes. Through SaaS deployment, it can quickly enhance the service quality and efficiency of new centers.

With the assistance of the care service platform, care experts can monitor the vital signs of mothers and babies in real time and record data with customer consent. By utilizing accumulated maternal and child care knowledge and collected data, the system can design personalized operating procedures for each customer In addition, the Saint Bella Group has also signed a strategic cooperation agreement with an artificial intelligence company to explore the application of large-scale language models in its operations. The group's ultimate goal is to transform its IT infrastructure into an integrated comprehensive platform called Beikang Intelligence, using AIoT devices, large language models, and other artificial intelligence technologies.

Zhītōng Finance and Economics App believes that Saint Bella is a technology-oriented group company disguised as a postpartum care center. With the support of a professional nursing team and a digital operating model, Saint Bella provides systematic, professional, and personalized high-quality services, achieving a high level of customer satisfaction within its customer base. In 2023, the average customer ratings for Saint Bella and Xiaobella Postpartum Centers were 9.62 and 9.34 respectively, saving the group a significant amount of marketing expenses.

106 million marketing expenses: Diversified expansion of brand influence

According to the prospectus, in 2021, 2022, and 2023, the cumulative sales and distribution expenses of Saint Bella's postpartum center business reached 106 million yuan. Despite the seemingly high marketing expenses, they are still relatively low compared to industry peers. In 2023, Aidi Palace's annual sales and distribution expenses reached 116 million Hong Kong dollars, corresponding to a revenue of 555 million Hong Kong dollars, with a sales expense ratio of about 21%; listed medical service company Yonghe's sales and marketing expenses in 2023 amounted to 1.044 billion yuan, corresponding to a revenue of 1.777 billion yuan, with a sales expense ratio of about 59%. The 106 million sales expenses of Saint Bella accounted for only 13.66% of its 776 million sales revenue, significantly lower than industry peers.

Why can Saint Bella achieve rapid business growth with a relatively low sales ratio?

Official information shows that in addition to relying on word-of-mouth marketing, the Saint Bella Group mainly promotes its services and products through online marketing, including shopping information platforms, social media platforms, and e-commerce platforms. Saint Bella Group has successfully held "Pregnancy Museum" exhibitions in several cities in China; collaborated with Tesla to launch a short-term project "Pregnant Moms Travel, Stop with a Wave" in multiple cities in China, providing free transportation services for pregnant women. Saint Bella has also collaborated with UCCA Ullens Center for Contemporary Art to customize armpit swim rings for newborns, aiming to address safety issues that traditional neck rings may pose during swimming, making newborn swimming more comfortable and safe.

According to Zhītōng Finance and Economics App, by studying user psychology, capturing user needs, and using diversified marketing promotion methods, the Saint Bella brand has enhanced its brand awareness and image, gaining corresponding brand value. Despite the increasing expenses that have put pressure on profits, Saint Bella has improved its profit quality significantly due to the rapid expansion of its business scale, structural improvements, and cost control. Therefore, unlike its industry peers, Saint Bella has not heavily invested in marketing expenses but has continued to optimize hardware, enhance personnel training, deepen standardized construction, and focus on technological research and development.

In 2023, Saint Bella Group's comprehensive gross profit margin increased to 36.5%, a year-on-year increase of 6.6%; during the same period, the net cash flow from operating activities reached 56.703 million yuan, a new high in nearly three years. The gross profit margin of the group's postpartum center business in 2023 reached 34.1%, an increase of 5.4 percentage points year-on-year, compared to Aidi Palace's 21.8% gross profit margin during the same period, exceeding by 12.3 percentage points Obviously, the expensive investment in standardization used by Saint Bella in the early stage is gradually showing results, and may exhibit diminishing marginal returns in the future.

In addition, Saint Bella Group is actively exploring the second growth curve. According to data from iResearch, in recent years, the proportion of mothers aged 80s to 95s with children aged 0-3 who choose postpartum care centers during the confinement period has reached 18.3%, which is on par with the proportion choosing postpartum nanny home services. Against this backdrop, Saint Bella Group aims to optimize profitability by investing, acquiring, adding new business lines, and leveraging synergies with postpartum care services.

In 2021, Saint Bella Group strategically acquired Guanghetang to enter the women's health functional food business. In addition to selling its products in self-operated online stores on e-commerce platforms, it has also begun exploring cross-selling in the group's postpartum care centers and through its own online channels. In 2023, Saint Bella Group's women's health functional food business achieved revenue of 70.954 million yuan, a year-on-year increase of 68.1%; the gross profit margin reached 63.3%, an increase of 19.6 percentage points year-on-year. In the future, this business segment may have higher growth potential, bringing higher gross profit and performance growth to Saint Bella Group.

According to a Frost & Sullivan report, the mainland Chinese women's health food market has vast growth potential. The market size increased from 40.4 billion yuan in 2018 to 70.8 billion yuan in 2023, with a compound annual growth rate of 11.9%. The expected market size will increase to 177.1 billion yuan by 2030, with a compound annual growth rate of 13.5% from 2024 to 2030.

It is reported that Saint Bella Group has also launched the YuJia home care service, invested in Hangzhou Meihua Hospital, the lifestyle magazine Robb Report Hong Kong, etc., to empower its main business of creating a family care ecosystem.

Is Saint Bella really losing money?

According to the prospectus, adjusted EBITDA and adjusted annual (loss)/profit are used as additional financial metrics based on non-Hong Kong financial reporting standards. In 2023, Saint Bella Group's adjusted EBITDA was 61 million yuan, a year-on-year increase of over 31 times; the adjusted annual profit was 21 million yuan, turning losses into profits year-on-year. It is well known that non-Hong Kong financial reporting standards, by excluding some non-recurring items, can more accurately reflect a company's operating cash flow situation and the profitability of its core business

The reason why Saint Bella Group incurred losses under the Hong Kong Financial Reporting Standards was mainly due to the fair value changes of financial instruments issued to investors (ordinary shares with preferential rights issued to pre-listing investors and warrants). According to the prospectus, Saint Bella Group recognized the increase in fair value of the above financial instruments as fair value losses, which are non-cash items and will not recur in the financial year after listing as the preferential rights will terminate shortly before listing.

According to the Intelligence Finance App, many companies may incur significant initial investment and operating costs when expanding into new businesses, and therefore choose to finance through issuing preferred shares to support their long-term strategic development. Issuing preferred shares may lead to short-term losses, but in the long run, it may help companies seize market opportunities and achieve greater growth.

In the Hong Kong stock market, internet giants such as Tencent (00700) and Meituan-W (03690) have issued preferred shares based on their financing needs. Meituan, for example, incurred losses of 10.5 billion yuan, 5.8 billion yuan, and 19 billion yuan respectively from 2015 to 2017 due to significant changes in the fair value of convertible redeemable preferred shares before listing. However, after adjustments for "fair value of preferred shares," the losses for the three years were reduced to 5.9 billion yuan, 5.4 billion yuan, and 2.85 billion yuan. After listing, both Tencent and Meituan have created substantial investment returns for investors due to their strong business growth.

In the view of the Intelligence Finance App, losses from preferred shares are not necessarily negative. The key is whether the company has a clear strategic plan and execution capability, as well as the ability to achieve profitability in the future. Looking at Saint Bella Group's steady business growth and profitability under non-Hong Kong Financial Reporting Standards, it is moving towards its vision of "reshaping the home care industry" with good business and profit growth prospects.

The Intelligence Finance App believes that Saint Bella spent 770 million yuan but gained the leading position in the postpartum care "unicorn" track, and achieved a profit after adjustment in 2023, giving the company a solid foundation to become a global leading home care brand group in the future. This long-term investment and determination may eventually create an excellent investment target for investors