“Investors Network” Xie Yingjie

China's medical and aesthetic industry has created the myth that the market size is 100 billion yuan, yet the medical and aesthetic cake has yet to have strong dividers, and the fragmented market pattern has lured capital to flock in. As an Internet medical and aesthetic service platform, New Oxygen (SY.O) draws consumers to offline medical and aesthetic institutions for consumption through the platform's community interaction, medical and aesthetic e-commerce promotion, and online consultation services.

With the recovery of overall consumption, the “face value economy” is showing a “weak recovery” trend, and the company recently received good news. Throughout 2023, New Oxygen's revenue increased 19% year over year to 1.5 billion yuan, and net profit to mother increased 359% year over year to 57.6 million yuan (non-GAAP).

However, its core operating data on the Internet platform has declined, and I'm afraid New Oxygen will have to continue to work hard if it wants to continue to take the top position as a vertical medical and aesthetic service platform and maintain the number one popularity and user stickiness in the industry.

The decline in core operating data

China's medical and aesthetic market has entered a period of rapid growth. According to Deloitte statistics, the market size is expected to exceed 350 billion yuan by 2025. Demand from Chinese consumers will gradually be released and will maintain a growth rate of over 10% for some time to come.

Compared to the most profitable upstream links in the medical and aesthetic industry, such as raw material manufacturers (Huaxi Biotech), injection manufacturers (Aimeike), equipment manufacturers, etc., medical and aesthetic concept stocks in the A-share market generally showed a volatile upward trend, while the stock price of New Oxygen fell for a long time after the listing.

In May 2019, after the US stock price reached the highest point of 22.8 US dollars/share within a week of listing, the stock price fell all the way down. At the end of 2022, it had bottomed out to 0.5 US dollars/share. The stock price has rebounded since this year, and recently fluctuated around 1 US dollar/share.

From 2021 to 2023, New Oxygen's revenue was 1,692 billion yuan, 1,258 billion yuan, 1.5 billion yuan, and net profit to mother was -08 billion yuan, -66 million yuan, and 21 million yuan, respectively.

New Oxygen expects the company's total revenue for the first quarter of 2024 to be between 290 million yuan and 310 million yuan, a decrease of 0% to 6.5% compared with the same period last year.

The capital market has always been based on performance. Due to the lack of stable profits, the capital market story of New Oxygen, like most Internet companies in China, is all based on the concept of “growth” — the O2O platform model pioneered by New Oxygen, which once disrupted the monopoly pattern of search engine bidding in the drainage of medical and aesthetic institutions.

However, as Internet platforms such as Ali and Meituan enter medicine and beauty, and high-frequency businesses such as takeout and payment are diverted into high-margin projects such as medicine and beauty, the disadvantages of New Oxygen itself's lack of a traffic advantage have become prominent. Some financial data has already shown hidden concerns that New Oxygen is not in harmony with the prosperity of the consumer market.

In 2023, the MAU of the New Oxygen mobile terminal in the first quarter, second quarter, third quarter, and fourth quarter was 3.4 million, 3 million, 3.1 million, and 2.7 million respectively. At its peak, this figure reached 10 million.

The number of paid medical institutions is also declining. In the fourth quarter of 2023, the number of medical service providers that ordered information services on the search platform was 1,289, compared to 1,489 in the same period in 2022.

In order to stabilize the secondary market, the company announced a repurchase of no more than 25 million US dollars of shares starting March 22, 2024, accounting for about 25% of the closing market value on the announcement date, and announced a dividend of 0.078 US dollars/common stock (0.06 US dollars/share) on April 12, 2024, with a total dividend of about 6 million US dollars.

There is frequent chaos in the industry, and regulations are being strengthened

The decline in New Oxygen's stock price is the result of a combination of factors: increased competition in the industry, delays in management decisions, and the overall decline in the stock market. The more profound background is that the medical and aesthetic environment is rapidly changing.

In 2023, the “Guiding Opinions on Further Strengthening the Supervision of the Medical and Aesthetic Industry” was issued, making it clear that supervision of medical and aesthetic “shopping guide” activities, medical beauty training activities, and lifestyle beauty should be strengthened.

As a medical and aesthetic service terminal platform, New Oxygen focuses on a community operation model. One of the revenue models is to produce and publish medical and aesthetic-related content through its own new media matrix, channel distribution to medical and aesthetic service providers, and collect advertising fees from them. The biggest hidden danger lies in illegal “black medical and aesthetic” institutions and medical disputes caused by them.

“There is frequent chaos in the Chinese medical and aesthetic market. The number of institutions illegally engaged in medical and aesthetic services is more than six times that of regular institutions. More than 90% of medical and aesthetic equipment in illegal medical and aesthetic establishments is fake, and about 10% of genuine products and water goods are leased or smuggled into the market. The product rate of injectable injections in circulation is about 33.3%, and the overall market compliance status needs to be improved.” The Deloitte report states.

What is causing the new oxygen a headache is that medical and aesthetic institutions still lack effective supervision policies. As an internet platform-based company, it struggles to decide between traffic and word of mouth.

According to the Black Cat Complaints Platform, there were 549 complaints about new oxygen, involving many issues such as false publicity, inadequate hygiene, allergies due to improper operation, non-compliance with qualifications, and difficulties with refunds. In June of last year, Beijing Yanan Rongyue Medical and Aesthetic was punished for falsely advertising content on platforms such as New Oxygen.

Furthermore, the beautiful diaries and reviews of community users were falsified. As a result, New Oxygen was listed as an app that infringes on users' rights and interests, and was named by various departments. For example, in December 2022, the Wenzhou Market Supervision Bureau announced some typical cases of violation to the public, and the New Oxygen App was named.

According to data from Tianyan Research, New Oxygen Technology's lawsuit mainly involved medical damage liability disputes, online infringement liability disputes, reputation disputes, disputes infringing on the right to disseminate information on the Internet.

Facing increasingly tight regulatory pressure, New Oxygen is actively promoting platform governance and industry self-discipline. In order to improve the negative impression of the outside world about the medical and aesthetic industry and the platform itself, New Oxygen has launched medical and aesthetic charity aid in the past two years.

Increase the decline in upstream and R&D

The overall environment of the capital market is poor. Coupled with the fact that it is a medical and aesthetic platform, New Oxygen still faces many unclear regulatory risks. However, in terms of its own growth, market competition is becoming more and more intense, and there is an urgent need for new oxygen to open up new sources of revenue growth.

The medical beauty industry chain is divided into upstream, middle, and downstream. Among them, medical and aesthetic consumables manufacturers, pharmaceutical and device manufacturers are upstream, medical and aesthetic institutions are in the middle stream, and consumer platforms leading by new oxygen belong to the terminal market and are located downstream.

Chairman and CEO of New Oxygen Jin Xing publicly announced the company's new development strategy: transformation from a medical and aesthetic e-commerce platform to an industrial internet platform, and officially launched the three innovative businesses of New Oxygen Premium, New Oxygen Express, and New Oxygen Exclusive, to empower medical and aesthetic institutions, medical and aesthetic doctors in all aspects.

The middle and upstream markets in the medical and aesthetic industry often have high technical barriers and strong profitability. New Oxygen combines resources from upstream manufacturers, institutions, and doctors to launch new categories such as dentistry.

In 2021, New Oxygen purchased about 85% of Wuhan Qizhi Laser Technology Co., Ltd. (hereinafter referred to as “Qizhi Laser”) at a price of 790 million yuan and became the controlling shareholder, and the actual controller of Qizhi Laser changed to Jin Xing, the founder of New Oxygen. According to public information, Qizhi Laser's main business is the production and operation of lasers, strong light medical and cosmetic equipment.

Determined to open up upstream, New Oxygen did not step up technology research and development. From 2021 to 2023, R&D expenses for new oxygen were 286 million yuan, 235 million yuan and 203.5 million yuan respectively, showing a downward trend.

Furthermore, New Oxygen also paid a surprise dividend before the subsidiary plans to go public. According to the official website of the Beijing Stock Exchange, Qizhi Laser's IPO application has been accepted. From 2020 to 2022, Qizhi Laser's cumulative net profit was about 100 million yuan, and dividends reached 72 million yuan. Judging from the 87.6% shareholding of New Oxygen, the actual controller, Jin Xing, is safe.

In the long run, some brokerage firms are still optimistic about the growth of New Oxygen. CICC lowered its 2024 revenue and net profit forecast by 11% and 22% to 1.5 billion yuan and 65.26 million yuan, and introduced 2025 revenue and net profit forecasts of 1.6 billion yuan and 79.64 million yuan, and lowered the target price from 1.7 to 1.5 billion US dollars.

However, the research report also pointed out that early investment in new businesses may drag down the Group's profit margins. The company expects that in the first half of this year, the high-margin advertising business will be reduced, and the Group may lose money when preferential self-operated stores are put into operation; however, along with the reduction in procurement costs and the optimization of the single store model, profit margins are expected to correct in the second half of this year, and the profit for the whole year may be higher than in 2023. (Produced by Thinking Finance) ■