Huaxi Biological (688363): Hardcore Technology Leads in Hyaluronic Acid Industry Chain Overlaps Boom Market

Leader of the whole industry chain of hyaluronic acid (HA).

Huaxi Bio has been firmly established as a global leader in hyaluronic acid (HA) raw materials, and as a result of this endorsement, it has rapidly expanded to the two major application markets of downstream medical terminals (2012) and cosmetics (2016).

In 2018, the company’s HA API output was 175.

5 tons (most of which are rarely exported for own use), accounting for 36% of the global share, and income 6.

500 million (CAGR 19% in 2016-2018); medical terminal revenue 3.

1.3 billion (CAGR 28%), of which skin medical products (mainly medical and hyaluronic acid filling injections) market share of 12%, orthopedic injection market share of 9%; cosmetics business income2.

9% (CAGR113%), forming a matrix of functional skin care with “Runbaiyan” as its core.

The global prosperity of the industry chain and the potential prospects of China’s application market.

Hyaluronic acid (HA), as a drug substance, has the three characteristics of water lock / lubrication / non-exclusion. In 2018, its global production and sales volume was 500 tons (86% produced in China), and the market size was 1.5-2 billion yuan.

In the downstream core application areas: cosmetics, food, and medical (orthopedics / medicine, etc.) accounted for 50% / 46% / 4% of sales, respectively, benefiting from downstream growth and broadening application segmentation. It is expected that HA will have a CAGR of 18% in the next five years.

China is an important global market for downstream applications. 北京桑拿洗浴保健 The highlights are as follows: 1. The outbreak of TCM beauty in medical applications has become a core driver (the number of doctors visiting CAGR 30% from 2011 to 2017), and other applications have great potential (such as the permeation rate of the auxiliary medicine orthopedic sodium hyaluronate injectionEstimated less than 3%).

2. The skin care industry is growing beautifully (the retail sales above the limit in the first three quarters of 2019 increased by 12.

8%), the functional skin care represented by “component representatives” is even more popular.

3. HA in the food sector is still limited to the use of health food additives. If the policy is liberalized, it will open a huge market.

Hard core technology rebuilds a solid foundation and actively shares industrial dividends.

The company’s technology in the HA 南宁桑拿 industry chain has always been a global leader. It has a team that was originally engaged in HA research and development (such as the “father of hyaluronic acid” in China), “source selection” and “enzymatic degradation” in the substitution of APIs.And the “cross-linking technology” of medical terminals has obvious advantages.

Hard core technology is the substantial foundation of the company’s license acquisition (7 domestic qualifications for raw materials / 21 international qualifications, 4 CFDA-certified brands for medical beauty), mass production, channel construction, and business extension.

On this basis, the company’s businesses have taken positive measures first: after the latest financing of the API market, they will add 300 tons of production capacity to consolidate the performance indicators; the medical preparations business takes full advantage of the cost of the entire industrial chain to seize market share, and at the same time develops botulinum toxin products in cooperation with South Korea’s Medidyx(Face-faced needle) is passing CFDA certification; the cosmetics market has strengthened its unique brand endorsement of “HA-throwing stock solution”, attracting top talent, grasping e-commerce outlets, and obtaining top IP (Forbidden City lipstick) to achieve explosive growth.

Investment suggestion: The company’s 2019-2021 sales revenue is expected to be 19.

01/27.

34/36.

63 trillion, an increase of 50.

53% / 43.

81% / 33.

97%; net profit attributable to mother 6.

02/7.

93/9.

96 trillion, with an increase of 42.

02% / 31.

79% / 25.

57%.

According to the DCF method, the company ‘s reasonable market value is increased by 26.7 billion US dollars. According to the gross profit margins of various business lines, and the net profit margin of the forecast rate indicators, we believe that the reasonable valuation of the raw materials + medical terminal products / cosmetics business is 35/40 times that of 2020, corresponding toThe total market value is 292 million.

Taking into account, we believe that the company’s reasonable market size is 270-300 trillion, corresponding to 34-38 times PE in 2020.

Risk warnings: industry competition is intensified; the rate of product sensitization is high; marketing effects are not significant.