Where does IMEIK come from and where does it go

IMEIK is a well-known leader in medical aesthetics, but its stock price has been falling for three years. Basically following the downward trend of the medical aesthetics industry index, there is not much struggle.

Looking back to when IMEIK went public, it was glorious. With a valuation of hundreds of times PE, backed by high growth performance and the frenzy of market funds, the stock price almost quadrupled, with a peak valuation of over two hundred times P/E ratio. This also means that even though the stock price has fallen so much for so long, IMEIK's historical valuation center still remains at a hundred times PE.

With the sharp drop after the interim report, IMEIK's valuation is starting to return to a more understandable range for everyone, around a dynamic P/E ratio of about 20 times, and the stock price is almost back to its initial listing position.

Is it that the medical aesthetics industry is not doing well, or is it that IMEIK is not doing well?

I. Actually, the performance is not too bad

Looking at IMEIK's interim report, the company achieved operating income of 1.657 billion yuan in the first half of 2024, a year-on-year increase of +13.53%, and a net profit attributable to the parent company of 1.121 billion yuan, a year-on-year increase of +16.35%. In Q2 24, operating income was 849 million yuan, a year-on-year increase of +2.35%, and net profit attributable to the parent company was 593 million yuan, a year-on-year increase of +8.03%, lower than market expectations.

The day after the performance was announced, the stock price plummeted by 12.31%, and the market reaction was very intense. With nearly 30% growth in the first quarter, only single-digit growth in the second quarter caught investors off guard.

However, in the overall market context, IMEIK's performance is still decent, with over 15% growth in the first half of the year. In Q2, under the high base of 82.6% growth in the same period last year, maintaining positive year-on-year and quarter-on-quarter growth is already a good performance. It's just that the market had higher expectations for it, after all, its past growth has been good, and its valuation has always been relatively high.

It can be seen that IMEIK is still very profitable.

In H1 24, IMEIK's gross profit margin was 94.91%, a decrease of about 0.5 percentage points year-on-year. Among them, the gross profit margin of solution-type/gel-type injection products was 93.98%/97.98%. Solution-type products are mainly "HiTi", while gel-type products are dominated by high-end regenerative "Rubi - Ruse" dual angels.

Revenue from solution-type injection products was 976 million yuan, a year-on-year increase of 11.65%, accounting for 58.92% of operating income; revenue from gel-type injection products was 649 million yuan, a year-on-year increase of 14.57%, accounting for 39.17% of operating income Net profit margin is 67.68%, an increase of 3 percentage points compared to the end of last year.

This kind of turning stones into gold business is even more exaggerated than Maotai's earnings. Maotai's gross profit margin is 91.76%, and net profit margin is 52.7%.

IMEIK has almost no debt, with total liabilities of only 336 million yuan and a debt ratio of only 4.5%. At the same time, the annual turnover rate is not high, only 0.44. This means that IMEIK has achieved a close to 30% ROE almost solely by selling products with super high profits.

In terms of expenses, the company's sales and management expenses decreased by 1.67 and 1.4 percentage points respectively year-on-year, demonstrating control over regular expenses.

At the same time, more expenses were allocated to research and development investment, with R&D spending increasing by 0.4 percentage points to 7.6% in the first half of the year.

Looking at the pipeline of products under research, the reserves are still relatively rich. Products like Botulinum Toxin Type A (for chin adaptation indications) are expected to be approved for listing. In multiple segmented areas such as botulinum toxin, chronic weight management, local skin anesthesia, hair regeneration, products have entered clinical and registration declaration stages. Simegluride, deoxycholic acid injection, and hyaluronidase for injection are currently in the preclinical stage.

The company also increased its stake in Aimeichuang Medical Technology Company in the first half of the year, which owns the "Haibao Shui" hydrotherapy device and other products, showing a high degree of synergy with the company's business.

It can be said that from an operational perspective, IMEIK's issues are not significant, but more about the mismatch between the company's valuation and market expectations.

Furthermore, in a situation where IMEIK's growth does not meet expectations, the company has also canceled its interim dividend. In the current market environment, this gives investors more reason to flee to more certain places.

II. Expectation shift for the leading medical beauty company?

Stable business demand and stable shareholder returns are currently more valued for certainty in the market.

IMEIK's dividend yield has only reluctantly increased to 2% due to the continuous decline in stock price. It repurchased some shares at the end of last year, accounting for only 0.39% of the total share capital. Therefore, stable shareholder returns are not emphasized here.

The market's enthusiasm for IMEIK mainly comes from the high growth rate of the medical beauty industry, the high barriers in the upstream, and IMEIK's own advantageous position with high gross margin products, which may lead to sustained rapid growth.

However, the overall situation is subtly changing.

According to the "Insight Report on the Chinese Medical Beauty Industry 2024" jointly released by the Chinese Association of Plastic and Aesthetic Surgery and Deloitte China, the service-oriented consumption is in a repair stage in 2024, with an expected growth rate of around 10% in the Chinese medical beauty market; driven by the continuous increase in medical beauty penetration rate and diversified quality medical beauty demands, the Chinese medical beauty market is expected to maintain a rapid growth of 10% to 15% in the next few years Looks good, but compared to the 2023 report, the growth rate has been lowered by 5%-10%.

In the past, an important logic of medical beauty was repurchase. Getting an injection only makes you beautiful for a period of time, so if you want to stay beautiful, you have to keep getting injections. Once you start the journey of medical beauty, this customer is very likely to settle in the basic customer group, without the need to make efforts to explore again. The vast majority of new developments are incremental.

However, under the trend of consumption downgrading, people have found that although medical beauty is relatively rigid, it is not a necessary expense. Although not going for periodic medical beauty treatments may lead to a decline in physical condition, most people can endure it for the sake of their wallets, waiting for measures such as price adjustments by manufacturers.

When the industry's expected growth rate is lowered, the industry's valuation needs to be adjusted accordingly.

Secondly, IMEIK's product advantages are facing a declining trend.

Medical beauty is an industry with certain thresholds, especially for injection products, which have strict approval processes. Medical beauty injection products are classified as Class III medical devices, and obtaining approval for registration and listing requires about 5 years or even longer of preliminary research, design, and preparation.

Compared to surgical, optoelectronic, and downstream medical beauty institutions in the industry chain, injection products, especially scarce injection products, have the highest value in the industry chain, and the first-mover advantage is also quite obvious.

Even if the industry growth rate declines, if the competitive landscape remains good, the market will still take a positive view.

However, both unique product advantages and first-mover product advantages have a time limit. For example, between 2014 and 2018, multiple silicone/silicone gel materials were registered and approved, mainly used for facial, nasal, and chest filling and shaping. This period was also a hot development stage for surgical medical beauty in China, with a subsequent decrease in the proportion of surgical procedures. After 2018, medical beauty products registered and listed in China were mainly hyaluronic acid sodium, and in the past two years, collagen and regenerative microsphere materials have been added.

The market is constantly iterating, with competitors slowly but steadily increasing.

As a star product under IMEIK, HiTi has been the only Class III medical device product approved for neck wrinkle repair in China for a long time. IMEIK has enjoyed the dividend of the unique product advantage for many years, but the growth rate is gradually slowing down, and alternatives for neck wrinkle repair such as gold micro-needles and Thermage have emerged downstream. In addition, in July of this year, Huaxi Bio's "Injection Hyaluronic Acid Sodium Compound Solution" was successfully approved by the NMPA for listing, applicable for "correcting neck wrinkles," which may directly compete with HiTi, breaking its monopoly situation.

Another core product, Ru Bai Angel, is also facing increased market competition, with products like Changchun Shengboma's Aiwilan and Huadong Medicine's Yiyanshi Youth Needle already in the market. At the same time, Korean AestheFill's Youth Needle distributed by Wuzhong, Jiangsu, Supranya from Gaode Mei, Puriyan from Puriyan Medical, and Youth Needle from Xingke Rong Medicine are also expected to be approved successively in 2024 Several other companies are also developing regenerative products, which may be launched in the next two years.

In addition, the recombinant collagen market is highly sought after. According to Frost & Sullivan, by 2025, the market share of collagen is expected to surpass hyaluronic acid for the first time, becoming the largest raw material component.

Jinbo Biotechnology's "Vivime" is currently the only domestically available recombinant collagen product that has obtained Class III medical device certification for injection use. It has gained wide recognition among consumers pursuing natural, safe, and effective medical beauty effects. Its recombinant collagen raw materials are also used by L'Oreal in their products.

Although there is a significant price difference between recombinant collagen and hyaluronic acid, there is likely to be some competition and substitution. Recombinant human collagen represented by Jinbo Biotechnology is growing rapidly, while IMEIK is not among them.

Conclusion

The market is constantly changing, and changes are accompanied by adjustments in expectations and valuations. As various competitions gradually emerge, it may be an opportunity for IMEIK to prove itself, demonstrating that it still has strong competitiveness in the free market. However, it is also possible to be gradually caught up with, as the new generation replaces the old