With ultra-high gross margins, the Chinese maker of wrinkle fillers makes second attempt at secondary listing in Hong Kong

Key Takeaways:

  • Started in 2004, Imeik is the largest provider of hyaluronic acid-based skin fillers in China
  • The firm’s products lack variety and tighter government regulations could throw a wrench in ambitious plans

By Tina Yip

Nearly a year after attempting to list in Hong Kong, the time has finally come for beauty products maker Imeik Technology Development Co. Ltd. (300896.SZ) to go through with its plan. Imeik filed for a Hong Kong listing in late June, along with a group of several large Chinese companies that want to list in the city in the second half of 2022.

Media reports speculated in July 2021 that Imeik was seeking a secondary listing in Hong Kong with plans to raise between $2 billion and $3 billion. In late June 2022, Imeik, which has a market cap of 130.5 billion yuan ($19 billion) on the Shenzhen market, filed to list in Hong Kong.

As the market for beauty products swells in China, Imeik seems like the poster child for the growing craze. After listing at 118.27 yuan per share in September 2020 in the ChiNext market of the Shenzhen Stock Exchange, the biomedical beauty company saw its share price soar to 1,331 yuan within six months, making it the third A-share company whose share price exceeded 1,000 yuan – the other two were Kweichow Moutai (600519.SH) and Beijing Roborock Technology (688169.SH).

Imeik focuses on hyaluronic acid beauty products that rehydrate skin and have become very popular. According to its preliminary prospectus, its gross margin has exceeded 90% in the past three years, reaching 93.3% last year. High gross margins in the beauty industry depend on the brand, with consumers willing to buy products from brands with good safety records. Imeik currently has seven products, including five skin fillers based on hyaluronic acid, one skin filler based on poly-L-lactic acid and one thread implant for facial lift based on poly-p-dioxanone.

Fast growing China market

Imeik’s revenue has shot up more than 350% in the past four years, to 1.45 billion yuan in 2021 from 321 million yuan in 2018. Profit has soared 675% to 957.3 million yuan in 2021 from nearly 116 million yuan in 2018.

The company said in its prospectus that it remains “focused on the fast-growing medical aesthetic market in China.” Quoting research from Frost & Sullivan, Imeik said that China’s medical aesthetic market is expected to grow 16.1% a year to reach nearly 400 billion yuan in 2026, from 189.1 billion yuan in 2021. Imeik said it contributed about 39.2% of the sales volume of hyaluronic acid products in China in 2021, making it the largest Chinese supplier of hyaluronic acid skin filler.

In the first quarter of 2022, despite Covid-19 disrupting operations, Imeik recorded a profit of 280 million yuan. Sales rose to 430.7 million yuan from 259.4 million yuan in the year-earlier quarter.

The company raised 3.43 billion yuan in the A-share market in 2020, but many of its investment plans were postponed due to the pandemic. Therefore, Imeik has strong coffers, with 3.19 billion yuan in cash and cash equivalents.

Imeik said the money it raises through the Hong Kong listing will be used for acquisitions, licensing arrangements, development and expansion of product pipelines, overseas product development and expanding its global presence.

Boutlinum toxin products

Imeik announced in June 2021 that it had bought a 25.4% stake in Huons BioPharma, a South Korean biomedical beauty producer, for 886 million yuan. In May 2022, both companies signed an agreement to jointly develop botulinum toxin products, which are expected to hit the market in 2024 to 2025.

Imeik’s investment in research and development has increased over the years, from 33.7 million yuan in 2018 to 102 million yuan in 2021. It owns 28 invention patents in China.

The future does hold uncertainty for Imeik as its product range is not very diverse. Nearly all Imeik’s sales come from a few products. Chinese companies Bloomage Biotechnology (688363.SH) and Haohai Biological Technology (6826.HK; 688366.SH) are already competing with Imeik in the hyaluronic acid product area. In addition to domestic competitors, international names like Allergan Aesthetics are also poised to take market share away from Imeik. So-Young International (SY.US) has won the exclusive rights to Elasty, a South Korean aesthetic brand in China, putting pressure on Imeik to expand its pipeline to keep customers interested.

Another threat comes from the government. Since last year, China has strengthened regulation of the biomedical beauty industry. China has also issued new rules to crack down on malpractice in the industry. Even though Imeik claims the regulations will not impact its business because it is not a direct biomedical beauty services provider, there are no guarantees that the Chinese government will not introduce new laws and regulations in the future that could lead to higher compliance costs.

Moreover, even if the government’s new rules have no direct impact on Imeik, the decrease in hyaluronic acid-based products holds the potential to drive down sales. According to F&S research, the average ex-factory price of all international and domestic hyaluronic acid based dermal fillers in China fell to 1,111 yuan per vial in 2021 from 1,557 yuan per vial in 2018. And the price is expected to continue to decrease in the future.

Imeik latest price-to-earnings (P/E) ratio stands at about 124 times in the A-share market, much higher than 67 times for competitor Bloomage Biotechnology and 52 times of for Haohai Biological Technology. Whether its Hong Kong shares will list at premium remains to be seen and will be decided by how investors feel about the regulatory environment, the overall capital market climate and future prospects for Imeik.

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