Since mid-September, the stock price of haohai biotec (06826) in Hong Kong has been as volatile as a roller coaster: following the Hang Seng Index from September 17th, the stock price climbed from 29.57 Hong Kong dollars to a high of 42.95 Hong Kong dollars on October 8th, with a maximum range of 45.25% in the period; then after peaking on October 8th, it began to drop sharply on high volume, with the stock price plunging by a maximum of 25.38% in just 5 trading days from October 8th to October 15th.

Although from October 16th to October 25th, haohai biotec's Hong Kong stock price entered a consolidation phase along with the overall market and began to slowly recover, a quarterly report released after the market on the 25th seems to signal the company being dragged into the next round of downward trends.

Zhitong Finance and Economics APP observed that after hours on October 25th, haohai biotec disclosed its 2024 Q3 financial report. However, due to the company's third-quarter performance falling below expectations, on October 28th, the company's stock price opened low and continued to decline, reaching a low of 29.75 Hong Kong dollars during intraday trading, with a maximum decline of 12.24%.

Who is 'dragging down' the company's performance?

According to haohai biotec's latest quarterly report, the company achieved total revenue of 0.67 billion yuan in the third quarter of this year, an increase of 0.22% year-on-year, a decrease of 11.61% quarter-on-quarter; net income attributable to shareholders was 0.106 billion yuan, a decrease of 13.13% year-on-year, a decrease of 23.33% quarter-on-quarter; non-net profit was 91.0742 million yuan, a decrease of 22.02% year-on-year, a decrease of 32.60% quarter-on-quarter.

At the same time, the company's revenue for the first three quarters of this year was 2.075 billion yuan, an increase of 4.69% year-on-year; net income attributable to shareholders was 0.341 billion yuan, an increase of 4.31% year-on-year; non-net income attributable to shareholders was 0.321 billion yuan, an increase of 5.53% year-on-year.

Sinolink Securities released a research report stating that the company's performance in the third quarter was lower than expected.

From a financial perspective, Shanghai Haohai Biological Technology has shown a clear phenomenon of "increased revenue but not increased profit", but this may not be the direct cause of its stock price decline. The market may be concerned about the expectation gap in its quarter-on-quarter data.

According to the understandings of the Wisdom Financial News APP, based on its previously disclosed 2024 interim report, during the reporting period, the company achieved double growth in revenue and net income. Specifically, revenue increased by 6.97% to 1.404 billion yuan, and net profit attributable to shareholders also increased by 14.64% year-on-year to 0.235 billion yuan. However, behind this seemingly stable data, there are signs of a slowdown in growth momentum for Haohai biotec: the revenue and net profit growth rates of Haohai biotec in the first half of this year significantly dropped from the high levels of 35.66% and 188.94% respectively in the same period last year.

From the income structure of the product end, the key product lines of Haohai biotec include medical beauty and wound care products, ophthalmic products, orthopedic products, anti-adhesion and hemostatic products, and other products. Among them, medical beauty and wound care products and ophthalmic products are the main sources of revenue, accounting for 45.22% and 32.18% of the revenue respectively.

In the first half of this year, the medical beauty and wound care product line of Haohai biotec achieved revenue of 0.634 billion yuan, a year-on-year increase of 25.72%. Among them, the revenue of the hyaluronic acid business accounted for 65.76% of this product business. In the first half of this year, the hyaluronic acid business achieved revenue of 0.417 billion yuan, a year-on-year increase of 51.30%. However, compared to the 114.35% year-on-year growth in the first half of 2023, the revenue growth of the hyaluronic acid business of Haohai biotec this year has significantly slowed down.

From a profitability perspective, the slowing growth of the high-gross-margin medical beauty product line has put pressure on the company's gross margin in the first three quarters, which decreased by 1.2 percentage points to 70.4%, showing a sequential decline. Looking back at the semi-annual report data, the company's overall gross margin for the current period was 70.51%, already down from 71.04% in the same period last year.

Shanghai Haohai Biological Technology pointed out that products such as ophthalmic intraocular lenses, ophthalmic viscoelastic agents, and orthopedic sodium hyaluronate injections are in a new round of national or provincial centralized procurement implementation stage during the reporting period, with a slight decrease in product sales prices, which basically offsets the contribution of the sales growth of hyaluronic acid products to the overall gross margin growth. The further sequential decline in the company's gross margin may indicate that under the influence of centralized procurement, the volume-price conversion of its ophthalmic business is still ongoing, and the impact of centralized procurement on the company's performance has not turned positive yet.

When will the growth bottleneck of the core sector be broken?

Historically, the revenue of Shanghai Haohai Biological Technology mainly comes from the four major areas of ophthalmology, medical beauty, orthopedics, and surgery. Among them, ophthalmology and medical beauty are its core sources of income. The reason why the secondary market performed poorly after its latest financial report may be due to the increasingly fierce market competition in the ophthalmology and medical beauty sectors of Haohai Biotechnology, squeezing the company's growth space to some extent.

Although Haohai Biotech did not disclose the specific product sales situation in this quarterly report, combining it with the mid-year report of this year, the decline in revenue from ophthalmic business may also be a major factor affecting its overall revenue growth. From the perspective of the ophthalmology sector, the main revenue source of Haohai Biotech is artificial crystalline lens products for cataracts and corneal shaping lenses for correcting myopia, namely OK lenses.

According to the Zhitong Finance APP, in November 2023, Haohai Biotechnology's new industry (Lenstec), Aaren, Henan Universe, Henan Saimesi, and ophthalmic viscoelastic agent products all won bids. It is worth mentioning that the recent national procurement has further reduced prices based on the previous rounds of provincial alliance group purchases, starting this year. This may affect patient surgeries in the fourth quarter of 2023 and the willingness of dealers to stock up, thereby affecting the company's revenue.

Due to the factors of centralized procurement prices yet to be digested, reflected in the financial report, the company's current artificial crystalline lens products achieved revenue of 0.181 billion yuan, a year-on-year decrease of 10.84%; ophthalmic viscoelastic agent products achieved revenue of 50.4204 million yuan, a year-on-year decrease of 10.16%; myopia prevention and control and refractive correction product line together achieved revenue of 0.201 billion yuan, a year-on-year decrease of 2.44%.

However, Haohai Biotech added that with the deepening implementation of national centralized procurement in the second half of the year, the sales volume of bid-winning artificial crystalline lens and ophthalmic viscoelastic agent products is expected to further increase. Especially in the high-end artificial crystalline lens products, there may be a breakthrough in sales volume, and it is expected to drive sales revenue growth through internal structural optimization of the products.

However, in the face of the increasingly intense market competition in the ophthalmology field, even if Haohai Biotech's product line wins bids, whether it can smoothly transition to volume and price remains unknown.

From the perspective of the market competition pattern, currently in China, non-spherical monofocal intraocular lenses account for 81.4% of the market share, followed by bifocal intraocular lenses accounting for 11.2% of the market share. Non-spherical lenses occupy the largest market share, which means that artificial intraocular lenses are gradually advancing and have already taken an absolute market position.

In terms of the current domestic artificial crystal market procurement volume, the market share of eyebright medical technology (beijing) co., ltd. reaches a maximum of 18.1%, ranking first in the industry; followed by CR agent johnson & johnson's market share of vision care at 13.1%; third is shanghai haohai biological technology, with a market share of 12.4%. In terms of usage, the current market share is relatively dispersed, but in terms of unit price calculation, the market share of overseas enterprises is significantly larger. Currently, among the four foreign giants in the domestic artificial crystal market, Alcon, Johnson & Johnson Vision, Bausch & Lomb, and Zeiss together occupy over 60% of the market, while domestic brands account for approximately 30% market share.

Looking at the demand structure of the intraocular lens national procurement market from a segmented product line perspective, eyebright medical technology (beijing) co., ltd. accounts for 15.2%, Johnson & Johnson for 25.1%, Zeiss for 35.5%, and Alcon for 21% in the single-focus artificial crystal market segment, with the top four companies occupying 97% of the market share. In the multifocal artificial crystal market demand structure, Zeiss, Johnson & Johnson, Hoya, and eyebright medical technology (beijing) co., ltd. account for 31.4%, 20.8%, 14.8%, and 10.9% of the market share respectively. Shanghai Haohai Biological Technology ranks fifth with 10.3%. In the high-end trifocal artificial crystal market, which is currently dominated by foreign capital, Zeiss leads the market with a 70.2% share.

For shanghai haohai biological technology, in the medical beauty field, hyaluronic acid as a relatively low-threshold medical beauty product, companies in this sector are facing increasingly fierce market competition, leading to continuously rising competitive risks for these companies in the field. In the ophthalmology field, the company also finds it challenging to achieve domestic substitutes and market volume in the short term. With the growth bottleneck in the core sector remaining unbroken, the company may find it difficult to achieve value reevaluation in the secondary market.