The gold mine of “bald” Tathagata

In recent years, “hair loss” has frequently become a hot topic on social media.

According to data released by the China Health Promotion and Education Association, nearly 250 million Chinese people are currently suffering from hair loss, and on average, 1 in 6 people has hair loss. The majority of people with hair loss are between the ages of 20 and 40, with the fastest development around 30 years of age.

The fast-growing population of hair loss has directly evolved the hair problem into a “top priority” and created a huge consumer market. On June 17, the hair transplant organization Yonghe Medical submitted a prospectus to the Hong Kong Stock Exchange. If it succeeds in breaking through the barriers, it will become the “first share of hair transplant.”

The prospectus shows that Yonghe Medical is China’s largest medical group that specializes in providing one-stop hair medical services. It has 51 medical institutions in 50 cities in China and has a market share of 11% as of 2020. Its gross profit margin is more than 70%. However, behind the per capita consumption of nearly 30,000, there is a net profit of less than 10%. Why is this huge gap?

1. The big bald business

Generally speaking, hair loss is divided into seven grades. Hair loss of grade 1-2 shows a healthy state of hair, and grade 3 begins to show symptoms of hair loss. This stage mainly protects the hair with care products, and grades 4-5 are the middle stage of hair loss. At this stage, the use of medical treatment can effectively alleviate hair loss. Grades 6-7 are severe stages of hair loss. Usually, the hair follicles have completely shrunk at stage 7, and medical treatment cannot take effect. Patients need hair transplant surgery to improve their head condition.

Image source: Internet
According to Yonghe Medical’s prospectus, there are more than 250 million people with hair loss in China, with an average of 1 in 6 people losing hair. Men are more likely to suffer from androgenetic alopecia, the prevalence rate is about 21.3%, and the prevalence rate for women is relatively low, about 6%.

In addition, according to user data collected by Alibaba, 76% of users searching for the keyword “hair loss” on online retail platforms are men, which shows that men are the “hardest hit area” for hair loss. CBNData data shows that the number of men with hair loss is approximately twice that of women, while the number of users searching for keywords for hair loss is three times that of women. Men are more concerned about hair loss than women and are more willing to treat hair loss.

However, compared with the actual number of hair loss in China, the number of people receiving hair transplant medical services in China is relatively small. In 2020, there will be about 516,000 hair transplant operations in China, with a penetration rate of 0.21%. The market demand has not yet been met.

According to Frost & Sullivan data, the market size of China’s hair transplant medical services in 2020 is 13.4 billion. It is expected that by 2025, the market size of China’s hair transplant medical services will reach 37.8 billion, with a compound annual growth rate of 23%. By 2030, the market size will further grow to 75.6 billion, and the compound annual growth rate from 2025 will be 14.9%.

With the rapid development of the hair transplant economy, competition in the industry has become increasingly fierce. At present, Yonghe Medical’s main competitors include other private hair transplant institutions, public hospitals and hair transplant departments of beauty service providers. Among them, local non-chain specialized hair transplant institutions account for about 45.6% of the Chinese hair transplant market due to their large number; large chain hair transplant institutions account for about 23.9%; the hair transplant departments of comprehensive medical aesthetic institutions account for about 15.7% of the market share; public The hair transplant department of the hospital accounts for approximately 14.8% of the remaining market share.

In order to expand rapidly, Yonghe Medical has adopted the traditional method of opening stores frantically. So far, Yonghe Medical has 51 stores nationwide, covering 50 cities, including 4 first-tier cities, 15 new first-tier cities, 25 second-tier cities, and 6 second-tier cities. The average annual growth from 2018 to 2020 is about 10, and the number of stores and the growth rate are at the leading level in the industry.

Moreover, the company’s new store capital recovery rate is relatively fast, and it can be profitable within 14 months. According to the company’s prospectus, as of the time of publication of the prospectus, the company’s operating institutions have an initial balance-of-payment period of approximately 3 months, an average cash return period of approximately 14 months, and an average of 3 months for the newly opened department. The loss can be ended within the period, the operating income of each period is sufficient to cover the expenditure of each period, the initial investment is fully recovered within 14 months, and the department begins to realize overall profitability.

2. Big business being fed by advertising

From 2018 to 2020, Yonghe Medical’s operating income will be 930 million, 1.22 billion and 1.64 billion respectively. The annual operating income CAGR (compound annual growth rate) is 32.8%, and the overall operating income has maintained a stable and high-speed growth.

In the same period, the company’s gross profit was approximately 700 million, 890 million, and 1.22 billion yuan, and the gross profit margin was 75.15%, 72.60%, and 74.57%, respectively. The net profit margins for 2018-2019 were 5.73%, 2.91%, and 9.97%, respectively.

In this way, Yonghe Medical’s average gross profit margin has exceeded the level of high-quality blue chips such as Moutai and Nongfu Spring, but the company’s net profit margin is only below 10%, which has a lot to do with the company’s huge marketing and sales expenses.

From 2018 to 2020, Yonghe Medical’s sales expenses were 464 million, 650 million, and 780 million yuan, respectively. Sales expenses accounted for 49.63%, 53.10%, and 47.59% of revenue, respectively. Basically, every two yuan earned is one piece. Money needs to be promoted. Based on the total number of people treated in the three years of 176,000, the average customer acquisition cost reached 10,795 yuan.

In addition, in the three years from 2018 to 2020, many of the top five suppliers of Yonghe Medical are advertising suppliers. In 2018, its top three supplier service items were search engine related advertisements, subway station display advertisements, and subway station display advertisements, which accounted for 15%, 2%, and 2% of total purchases respectively. In 2019, the number one supplier service item is still search engine related advertisements, accounting for 15%. The service items of the top five suppliers in 2020 are advertising and promotion, accounting for 20% of total purchases.

Investigations by professional institutions show that hair transplant agencies mainly adopt online + offline marketing methods in their marketing. Online marketing is the mainstream marketing method, mainly through online search or information flow advertising. Generally speaking, it accounts for marketing expenses. 70%; offline advertising is carried out through elevator LED, subway, road or airport advertising space, accounting for about 30% of marketing expenses.

It takes a lot, but the effect is not necessarily good. Hair transplant itself is a “one-shot deal”. If the effect of the hair transplant is good, the customer does not need to buy it again; if the effect is not good, the customer is even less likely to come again. Therefore, Yonghe Medical will inevitably fall into this endless loop of acquiring users, that is, no one will come without advertising, it is difficult to repurchase after advertising, and it needs to continue advertising.

In the prospectus, Yonghe Medical also stated that most of the medical effects of hair transplant income may last forever, and there is no guarantee that customers will become “repeat customers.” If Yonghe cannot guarantee the continuous increase of new customers, it will have a material adverse effect on performance.

Therefore, advertising and marketing battles will be the main theme for a long time in the future, and Yonghe Medical’s sales expenditure may only increase.

Under the massive publicity, Yonghe Medical has also been fined many times for violations. According to the prospectus, in 2018, Yonghe had seven non-compliance matters being punished. Among them, Beijing Yonghe Mido Clinic Co., Ltd., in order to promote the medical services of the Yonghe Medical brand, altered the medical advertisement review and approval documents, and published unreviewed and approved advertisements in the carriages of Shanghai Metro Line 1, Line 2, and Line 4. Content, a fine of 1.767 million yuan.

Therefore, on the surface, the hair transplant business is all money. A closer look is full of pitfalls. Although Yonghe Medical has a high gross profit margin, it does not earn much net profit.

3. Overhead business is not easy

In fact, different from the common perception that “medical beauty is making women’s money” is that more and more capitals are optimistic about the medical beauty business for men, and hair transplantation is one of them.

As early as 2017, Gengmei App founder and CEO Liu Di publicly pointed out that the more men whose career reaches a certain height, the more they pay attention to appearance. This group of people are high-net-worth individuals in the medical beauty market, with strong spending power and a short consumption decision-making process. . “In the future, the entire male medical beauty market has a huge profit margin, and Gengmei App is waiting for the outbreak of the male medical beauty market.”

Data from AVIC Securities also shows that with the changes in aesthetics in recent years, the group of male medical aesthetics users is expanding year by year, and they are often more willing to “spend money” on medical aesthetics. The unit price of male users is 2.75 times that of females.

Therefore, although “I am bald, I have become stronger” is a joke, but it also shows to a certain extent the dialectical relationship between “bald” and “strong” among male groups. The stronger the person, the greater the anxiety about their appearance. Often the more willing to spend money.

In order to meet the needs of consumers, domestic hair transplant-related companies have exploded in the past few years. Data from Enterprise Check shows that there are 1,104 hair transplant-related companies in my country, of which Guangdong ranks first with 175, followed by Guizhou and Yunnan. Judging from the trend of registration volume, there will be 176 new ones in 2019, 169 new ones in 2020, and 80 new ones from January to May this year.

Image source: Enterprise Chacha
The rapid growth rate also exposed a series of problems related to hair transplantation companies.

According to the Beijing Evening News, as to the effect of hair transplants, institutions currently on the market generally claim to guarantee the survival rate of hair. Most of these hair transplant institutions guarantee a survival rate of up to 95%, and “hair transplants can not take off”, but the results are often unsatisfactory.

The media reporter’s investigation also found that the threshold for joining hair transplant institutions is also low. The cost of joining a hair transplant shop requires 70,000 yuan to start, and it only takes “two to three days” to learn hair transplant technology.

The advertisement page of a Beijing Wuhen hair transplant organization published by a franchise website shows that “the company trains relevant personnel for franchisees, provides technical guidance, and displays the operation process across the board.” “Go through the business procedures and the headquarters management and technical supervisors formally enter the site”. 59 people have consulted the agency about joining.

In addition to internal worries, private hair transplant institutions also have to face external competition, which mainly comes from wig products.

Wigs have gradually become the first choice for some hair loss patients due to their convenience, high simulation, and easy care. The China-Thailand Securities Research Report shows that the Chinese wig market is about 25-35 billion industry scale, and the compound annual growth rate of the wig industry in 2019-2031 is 13%-17%.

The well-known A-share hair products company Henan Rebecca Hair Products Co., Ltd. (hereinafter referred to as Rebecca) had revenue of over 1.8 billion yuan in 2016. In 2019, Rebecca’s factories have exceeded 5,000 and the number of employees is It has reached 300,000 people, which can be said to be a “rich side.” Despite the impact of the epidemic in 2020, Rebecca’s revenue still exceeds 1.3 billion.

With the blue ocean market and rapid growth, coupled with the same “medical beauty concept” Angel of Time rose 132% on the first day of listing, Yonghe Medical’s hair transplant market seems to be a good business. However, the broad market and low penetration rate at the present stage present opportunities and challenges for enterprises represented by Yonghe Medical.

In an interview with the media, Gong Tao, chairman of the China Capital Fund, said that the medical aesthetics industry is a new industry, and there is a process from chaos to cure. At present, the medical aesthetics industry has different levels of quality control issues, and more medical institutions Focusing on marketing, there has been a phenomenon that sales and diagnosis and treatment are turning the cart before the horse. The final result is the accumulation of various accident risks during the rapid development process. This is also what investors need to pay attention to.