IPO wrinkles

Profitable collagen firms on investors’ radar


The fountain of youth?

Collagen, its champions say, is the miracle ingredient that will leave your skin fresh, your bones strong and your joints pain-free. Collagen-infused powders, pills and facial masks have flooded the market. But collagen makers need to convince investors that their prospects are as promising as the benefits of their product. In the last month, three of them have announced plans for IPOs in China.

First there’s the industry leader Xi’an-based Giant Biogene, which has filed for an initial public offering on the Hong Kong stock exchange. Founded in 2000 by Fan Daidi, it started out developing recombinant collagen (for bone repair) and earned the sector’s first patent five years later. Since then it has doubled down in the beauty sector, with sales soaring from Rmb957 million ($143 million) in 2019 to Rmb1.6 billion in 2021. Most of its revenue comes from its two collagen facial mask brands Comfy and Collgene, alongside much smaller contributions from its collagen face cream and toner.

The company positions itself as a luxury brand and enjoys premium prices for its facial sheets as a result. According to its IPO prospectus, net profits rose from Rmb575 million to Rmb828 million between 2019 and 2021, with gross margins climbing to a little over 87%. Similarly, net profit margins exceeded 53%, better than Kweichow Moutai, the country’s leading stock by market value and a perennial favourite for investors.

Part of the reason for the excellent returns is that the main component of its collagen sheet masks is, in fact, water. “Water makes up about 80% of the ingredients that go into a facial mask, so that’s around Rmb3 per sheet. And even the ones that come with collagen don’t cost that much more to make,” an insider told 36Kr.

Giant Biogene’s investment in R&D has also been relatively limited, rising from Rmb11.4 million in 2019 to Rmb25 million last year. That was just 1.2% and 1.6% of revenues in those two years, respectively.

In planning an IPO, Giant Biogene will have to compete with smaller rivals that are also eyeing investor cash. Chuang’er Biology, which is based in Guangzhou, has announced plans to list on the Beijing stock exchange, for instance, following Jinbo Bio, which has also filed for an IPO in the Chinese capital. Jinbo Bio is a much smaller collagen firm than Giant Biogene. In 2021, its sales were just Rmb233 million. Its main business is supplying collagen to medical clinics (for use in injections) as well as to other skincare brands. Jinbo also makes protein products used to treat HPV infections, making up 30% of its sales.

What’s consistent across all three collagen makers is their high profit margins. Jinbo’s gross margin was consistently above 80% between 2019 and 2021 and Chuang’er Biology’s never dipped lower than 82.5% over the same period. Like Giant Biogene, Chuang’er devotes relatively limited resources to product development too (although Jinbo’s R&D expenses are some of the highest in the industry at 15% of total sales). That gives the trio more cash to spend on sales and marketing, while the longevity of the leading brands works in their favour as well.

“The reason why the collagen market is so profitable is inseparable from the high barriers to entry in the industry. There are technical barriers, access barriers and time barriers, just to name a few. The leading manufacturers block competition from new entrants to a certain extent, so they can maintain pricing power and thereby enjoy healthy profit margins. But both Giant Biogene and Jinbo Bio have invested a lot of time and money over the years, including in government approvals before [products] can be commercialised,” IPO Focus concludes.

Sina Finance still cautions that these lower levels of investment in R&D could spell trouble for the leaders in the longer run, however.

“At present, competition in the collagen industry is becoming more and more fierce, and many want to become the first collagen-stock in China,” the news portal says. “The collagen beauty mask industry is a big money maker. But as the pie grows, so does the competition. In order to stay so profitable, companies will need to constantly introduce new products to attract consumers.”

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