China Consumer

The bald truth

China’s largest hair transplant firm files for a Hong Kong IPO


Might he want Yonghe’s services?

For long periods of their history, the Chinese have preferred not to cut their hair. Han Chinese men bunched up their locks into a bun and wrapped it in linen. “Our body, skin and hair are all given by our parents. We dare not injure them. This is, first and foremost, a filial duty,” explained the Xiaojing, a classic Confucian text. Trimming of hair was tantamount to insulting one’s parents and the shaving of heads was one of the most humiliating forms of punishment.

In today’s China losing hair is more an issue of vanity than filial piety. In WiC543 we discussed how more and more Chinese are grappling with “appearance anxiety”, thanks to a torrent of advertising that sets painfully high standards in terms of personal beauty. That word ‘painfully’ is literal: millions of people are undergoing invasive treatments that promise flattering makeovers. The same mentality is buoying the ‘medical hair care services’ market, as indicated by an initial public offering of Yonghe Medical Group, a leading player.

In the prospectus for its Hong Kong IPO, which was filed in the middle of June, Yonghe notes that the hair transplant market in China promises Rmb75.6 billion ($11.7 billion) in annual sales by 2030. Growth is guaranteed by rising incidence of baldness. Articles in the Chinese media fret about the early onset of hair loss (now for those as young as 30, two decades earlier than previous generations, according to one white paper), while the National Health Commission has suggested that one in six people now suffers from premature hair loss, with men accounting for about two-thirds of that group.

Signs of the problem are evident in surging sales of booster shampoos, vibrating hair brushes and hair pieces. Hair transplants – surgical procedures in which follicles are extracted from healthier areas of the scalp and replanted in thinner patches – are the more dramatic solution. Based in Bejing, Yonghe is the largest provider of the treatment by both footprint and revenue. It claims about 11% of a market of around 516,000 hair transplants in China last year – well below 1% of potential demand.

Yonghe does business through a network of 51 clinics across 50 cities that it has expanded through the 2017 acquisition of the mainland Chinese business of Svenson, a London-based brand that offers hair restoration products and services, as well as the Hong Kong arm of America’s Nu/Hart Hair in May. Sales rose a third last year to Rmb1.64 billion, with customers paying at least Rmb20,000 for an entry-level treatment.

Yonghe’s profit margin is about 10% of revenue, with much of its income swallowed up by spending on advertising, which has been hovering at levels of nearly half annual revenues. A challenge in Yonghe’s model is that much of what it is selling is one-off treatments rather than a repeat business due to the nature of hair transplants. “Such operations, if done well, should offer permanent solutions to hair loss, meaning that the customer has no need to return to the clinic. If otherwise, that makes its services a hard sell,” noted Tencent News in an article that also cited Yonghe’s high customer acquisition costs.

In response the company is trying to shift more of its income to a wider range of services, including non-surgical treatments for an array of scalp and hair problems. The contributions of these offerings jumped from 1.2% of sales in 2019 to 13% last year.

Yonghe was founded in 2005 by Zhang Yu. Lacking much of an education, he joined the army at 16, before finding his way into the advertising industry, according to Sohu, a news portal. From there he took a more entrepreneurial path, spotting the opportunity in male baldness. The 35 year-old has a 42.6% stake in Yonghe, which has been primarily backed by the private equity arm of Citic since 2017.

The company plans to raise HK$1.9 billion ($245 million) via the IPO and says the proceeds will be used to establish 50 more hair transplantation outlets and 60 nonsurgical medical centres in China.

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