Stock prices plummeted by 95%, "YONGHE MEDICAL" companies struggle to reverse the decline

Author: Zhang Yu

Editor: Yang Yong

ID: HQingXiaoFei

The large and increasing number of people suffering from hair loss are entering a significant hair transplant market. Hair transplant was once considered a highly profitable business, with many private hair transplant companies seeking to go public. For example, in December 2021, YONGHE MEDICAL successfully listed on the Hong Kong Stock Exchange, becoming the "first stock of hair transplant" in China. In June 2022, DaMai Hair Transplant made attempts to go public on the Hong Kong Stock Exchange, but has not been successful in listing after submitting its prospectus twice. Additionally, companies like BiLianSheng and XinSheng Hair Transplant, although they have not officially announced IPO plans, also have a certain market share and influence in the hair transplant industry.

The hair transplant industry indeed has huge development prospects. According to a survey by the National Health Commission, the number of people suffering from hair loss in China reached 252 million in 2022, and it is expected that this number will continue to grow to 258 million by 2030. However, compared to the actual number of people suffering from hair loss, the number of people receiving hair transplant medical services is relatively small. The penetration rate of the hair transplant industry in China in 2022 is about 0.21%, meaning that out of every 1000 hair loss patients, only about 21 people choose to undergo hair transplant surgery, indicating a huge market demand.

Taking YONGHE MEDICAL, the representative "first stock of hair transplant," as an example, on August 5th, YONGHE MEDICAL released a performance forecast for the first half of 2024, disclosing that its net loss is expected to significantly decrease to no more than 150 million yuan. This includes a one-time loss of approximately 33 million yuan generated by the closure and adjustment of some of its branches. Compared to the net loss of about 226.2 million yuan in the same period of 2023, the expected net loss reduction in the first half of 2024 is estimated to be no less than about 33.5%.

However, investors seem unconvinced. As of the close of trading on the Hong Kong Stock Exchange on August 20th, YONGHE MEDICAL's stock price was only 0.8 Hong Kong dollars per share, a decrease of 95.77% from its historical high of 18.907 Hong Kong dollars per share and a decrease of 94.94% from its IPO price of 15.80 Hong Kong dollars per share. The total market value has also evaporated by over 8.2 billion Hong Kong dollars since the first day of listing.

Despite the rapid growth driven by "beauty economy" and "hair loss anxiety," YONGHE MEDICAL has been experiencing a continuous decline in performance and weakening profitability since its listing. If even industry giants are facing such challenges, is hair transplant really a good business?

Hair Transplant Companies Lower Prices to Attract Customers

Despite the increasing popularity of the hair transplant industry, there is still a difficulty in attracting customers due to the high cost of hair transplant surgery In fact, the high unit price of hair transplant surgery is no longer a secret. It is understood that the pricing of hair transplant surgery is calculated based on follicular units. Currently in China, the price of hair transplant is basically between 10-30 yuan per follicular unit, and consumers with hair transplant needs usually need to transplant thousands of follicular units. Industry insiders say that if the area requiring hair transplant exceeds 80%, the cost would be at least 20,000-30,000 yuan.

Through the operating performance of YONGHE MEDICAL, we can indirectly reflect how difficult it is for the hair transplant industry to acquire customers.

From 2018 to 2023, YONGHE MEDICAL's expenditure on sales and marketing expenses has remained high, reaching 464 million yuan, 650 million yuan, 780 million yuan, 1.073 billion yuan, 767 million yuan, and 1.044 billion yuan respectively, accounting for 50%, 53.1%, 47.6%, 49.47%, 54.28%, and 58.76% of total revenue, showing an increasing trend year by year.

It is also worth mentioning that the top five suppliers listed in YONGHE MEDICAL's prospectus are all advertising service providers, providing advertising channels including online communities, search engines, social media platforms, and elevator displays.

Not only YONGHE MEDICAL, but also in the prospectus of DAMAI Hair Transplant, from 2019 to the first seven months of 2022, DAMAI Hair Transplant's marketing and distribution expenses were 500 million yuan, 399 million yuan, 520 million yuan, and 212 million yuan respectively, accounting for 66.93%, 52.22%, 50.93%, and 45.09% of total revenue. At the same time, in 2020, DAMAI Hair Transplant's top five suppliers were all advertising service providers, with a total procurement amount of up to 216 million yuan. In 2021, advertising service providers remained the top four suppliers of DAMAI Hair Transplant, with a total procurement amount of 233 million yuan.

In response, DAMAI Hair Transplant frankly stated, "Given the huge growth potential of the market, we recognize the importance of effectively educating the market and promoting our brand. Our marketing strategy mainly focuses on market education, brand advertising, and customer acquisition."

A medical beauty practitioner told Hydrogen Consumption, "The hair transplant industry is quite special, almost a one-time deal, and consumers have no repeat purchase demand and very low sharing desire, making it difficult for companies to establish brand awareness. They can only continuously develop new customer sources, which can only be achieved through heavy advertising and promotion."

In response to the difficulty of acquiring customers, YONGHE MEDICAL adopted a price reduction strategy in February 2023, breaking the industry's pricing model based on follicles and adopting a "fixed price" pricing system based on doctor level and hair transplant method to reduce the decision-making cost of hair transplant patients. At the same time, DAMAI Hair Transplant and BILIANSHENG also adopted price reduction strategies. "Previously, DAMAI Hair Transplant was priced at 10-12 yuan/unit, BILIANSHENG was priced at 15 yuan/unit, but now DAMAI Hair Transplant has reduced to 6-8 yuan/unit, and BILIANSHENG has reduced to 10-12 yuan/unit. Compared to around 2020, the overall hair transplant prices have dropped by about 30-40%." The aforementioned medical beauty practitioner stated According to the financial report, the per capita consumption of hair transplant patients at Yonghe Medical decreased from 26,251 yuan in 2022 to 22,174 yuan in 2023, a price reduction of over 15%. The prospectus of Da Mai Hair Transplant shows that from 2019 to the first seven months of 2022, the average customer spending for Da Mai Hair Transplant was 30,000 yuan, 25,800 yuan, 24,600 yuan, and 23,100 yuan respectively, showing a gradual downward trend.

Still Accelerating Expansion

A research report released by Frost & Sullivan shows that in 2020, there were approximately 516,000 hair transplant surgeries in China. Calculated based on 250 million hair loss sufferers, the market penetration rate is only 0.21%. Frost & Sullivan predicts that the Chinese hair medical service market will grow at a compound annual growth rate of 22.3% and reach 138.1 billion yuan by 2030.

With low penetration rate and fast growth, it means that the demand in the hair transplant market is far from being met, and the hair transplant industry has vast room for growth.

"By the end of 2023, the number of stores will expand to 80, and the number of doctors will increase to 500," said Zhang Yu, Executive Director and CEO of Yonghe Medical. Ren Jian, CGO of Yonghe Medical, also believes, "If the past demand was highly concentrated in first and second-tier cities, now the entire demand for hair transplants has spread across the country. How to penetrate from first-tier cities and second-tier cities to third and fourth-tier cities belongs to the second phase of development for the entire industry."

According to the financial report, Yonghe Medical added 16 new stores in 2023, including 12 hair transplant institutions and 4 maintenance institutions. In 2022, it also added 15 stores in total, including 9 hair transplant institutions and 6 maintenance institutions. Yonghe Medical stated in the financial report that the new hair transplant institutions "are mainly distributed in second and third-tier cities in South China, East China, and Central China, and newly cover regions in the northwest such as Ningxia and Qinghai." Through accelerated expansion, Yonghe Medical's hair transplant institutions in second-tier cities increased from 27 to 31, and the number of hair transplant institutions in third-tier cities rapidly grew from 11 to 20.

Da Mai Hair Transplant also stated in its prospectus that it plans to further establish three medical institutions with attached maintenance centers in first-tier cities from 2023 to 2025, and establish 27 medical institutions in other cities.

Accelerated expansion has to some extent alleviated the difficulty in acquiring customers. From 2018 to 2022, the number of patients at Yonghe Medical was 35,200, 49,900, 91,100, 149,900, and 104,400 respectively, and in 2023, the number of patients exceeded 139,000, a year-on-year increase of 27.2%. Da Mai Hair Transplant had 23,800 patients in 2019, increased to 27,600 in 2020, and further increased to 32,700 in 2021 However, the accelerated expansion of the hair transplant industry has also brought many hidden concerns, such as increased management difficulty, significantly increased operating costs, serious homogenization, and uneven quality of hair transplant doctors. It is also worth mentioning that the accelerated expansion of YONGHE MEDICAL has put pressure on cash flow. As of 2023, YONGHE MEDICAL's cash and cash equivalents and term deposits amounted to 603 million yuan, a decrease of 375 million yuan compared to 978 million yuan in 2022.

Worsening Reputation Collapse Makes Customer Acquisition Difficult

Despite the hair transplant industry's huge sales and marketing expenses, the reputation has not been improving, but has instead been repeatedly complained about by consumers.

On the consumer complaint platform Black Cat Complaints, a search using the keyword "Yonghe Hair Transplant" yielded 91 related complaints, with various reasons for complaints, mostly revolving around issues such as "deceiving consumers," "exaggerating false advertising," and "surgical results falling short of expectations." Similarly, Da Mai Hair Transplant also received 52 complaints, with similar reasons.

In addition, through platforms such as Weibo and Douyin, it was found that many hair transplant companies, including YONGHE MEDICAL, Da Mai Hair Transplant, and Xi Duo Hair Transplant, have been involved in false reporting of hair follicles, inducing consumption, unsatisfactory planting results, difficult identification, overcharging, unauthorized use of surgical-related photos, postoperative disputes, and other chaotic practices.

The medical chaos exposed by hair transplant companies goes beyond these examples. For instance, an administrative penalty notice issued by the Huangpu District Health Commission of Shanghai on February 4, 2024, revealed that Shanghai Yonghe Hospital under YONGHE MEDICAL was fined 10,000 yuan for "using non-health technical personnel to engage in medical and health technical work," violating Article 47 of the "Regulations on the Management of Medical Institutions." The reason behind this penalty was that during a hair transplant surgery, the operating doctor quietly left halfway through, and was replaced by two nurses.

Da Mai Hair Transplant's prospectus also revealed that as of July 31, 2022, the company had 6 service institutions that were fined for violating applicable laws and regulations on medical advertising. Tianyancha also showed that in 2022 alone, 6 subsidiaries invested by Da Mai Hair Transplant were penalized 7 times. From 2019 to the first seven months of 2022, the total settlement and compensation amounts made by Da Mai Hair Transplant for failing to achieve the guaranteed survival rate were approximately RMB 195,000, 281,000, 388,000, and 326,000 respectively.

Overall, the hair transplant industry is facing a serious challenge in acquiring customers, which forces continuous increase in marketing investment. At the same time, the industry's chaos has not been effectively addressed, leading to perennial losses for hair transplant companies and an escalating vicious cycle. The key to breaking the deadlock in the hair transplant industry lies in internal refinement of management and establishment of standardized services. Relying solely on marketing to drive growth is by no means a sustainable solution