Sky-high medical beauty, who takes the huge profits?

Zebra Consumer Chen Biting

Whether it's a few hundred yuan for photorejuvenation, thousands for Thermage, or tens of thousands for breast augmentation and double eyelid surgery, the common feeling after spending on medical aesthetic projects is just one: expensive.

However, this lucrative industry doesn't necessarily mean it's highly profitable. You might not believe it, but those seemingly high-end medical aesthetic centers and plastic surgery hospitals aren't making much money.

Professional medical aesthetic company Raily Aesthetic Medicine continues to report losses. Jinfa Labe's soon-to-be-merged Hanfei Aesthetic Medicine has been losing money for several years and failed to meet performance commitments. Before transitioning into medical aesthetics, Langji Holding faced years of performance pressure. Only after years of painstaking operations did it become an industry leader, with its medical aesthetics performance finally rebounding—but its profitability might still lag behind its traditional apparel business.

China's medical aesthetics industry is still in its early stages of development. Leading company Langji Holding generates annual revenue of 2.1 billion yuan from its medical aesthetics business, yet its market share is just over 1%.

The low market concentration means medical aesthetics brands lack bargaining power against upstream pharmaceutical and device giants and downstream internet platforms that divert traffic. Low gross margins coupled with high expense ratios result in very limited profitability.

More critically, this long-term squeeze from both ends shows no signs of resolution in the near future.

Booming Industry

A decade ago, the movie "Plastic Surgery Diary" depicted how plastic surgery altered women's lives and distorted human nature. Today, in TV dramas and variety shows, plastic surgery has become fashionable—even male celebrities insist on getting Thermage before appearing on programs.

Medical aesthetics has evolved from a niche term that once evoked fear into a mainstream consumer activity people take for granted.

In the past, medical aesthetics was largely synonymous with what's now called "heavy medical aesthetics," including procedures like rhinoplasty, breast augmentation, double eyelid surgery, and liposuction. Today, non-surgical "light medical aesthetics" treatments like hydrating injections, hyaluronic acid, botox, and collagen have gained popularity, becoming the market mainstream.

In terms of procedure volume, light medical aesthetics accounted for about 60% five years ago but now approaches 90%. In terms of market size, light medical aesthetics has caught up with heavy medical aesthetics and shows signs of surpassing it.

Light medical aesthetics has also made the consumer base younger, with those under 30 becoming the core demographic, rapidly expanding the pool of potential customers.

Medical aesthetics is no longer exclusive to women. The awakening of male spending power in this market has become a hot industry topic. Major procedures like hair transplants, predominantly targeting men, have become highlights in the broader health sector in recent years.

Even travelers to South Korea often include light medical aesthetics as a must-do activity, giving rise to a hidden consumption trend: overseas medical aesthetics.

As a result, medical aesthetics has become a hot sector in the consumer market in recent years.

Data from Qichacha shows over 150,000 medical aesthetics-related companies currently operating in China. Over the past decade, registrations of such companies have grown steadily, entering a peak phase starting in 2021. Registrations in 2021-2023 were 29,200, 34,000, and 47,000 respectively, with 34,500 already registered by October 16, 2024.

In capital markets, medical aesthetics companies are flourishing. A-listed Langji Holding (002612.SZ) has embarked on large-scale industry consolidation in the medical aesthetics market. Companies like EC Healthcare, Raily Aesthetic Medicine, and Beauty Farm (02373.HK) have listed on the Hong Kong Stock Exchange, while others like Yimei'er and Yixing Plastic Surgery await IPOs. Aesthetic Medical International is listed in the U.S., and Hanwa Healthcare trades on the New Third Board.

What attracts these players is the industry's growth potential.

Deloitte's "2023 China Medical Aesthetics Industry Insights Report" reveals that China's medical aesthetics market exceeded 200 billion yuan in 2023, growing at 20%. It's projected to maintain an annual compound growth rate of around 15% from 2023 to 2027.

In this steadily growing market, are those lavishly decorated medical aesthetics centers in prime urban locations raking in profits?

Actually, quite the opposite.

The Struggle to Profit

Is medical aesthetics profitable? Hong Kong-listed Raily Aesthetic Medicine (02135.HK) provides the answer.

In 2008, Hangzhou Belifuer was established, later followed by Hangzhou Raily, Rui'an Raily, Wuhu Raily, and Hainan Belifuer. These formed Raily Aesthetic Medicine, which listed on the Hong Kong Stock Exchange at the end of 2020.

Before going public, Raily Aesthetic Medicine managed modest profits. From 2017 to 2019, revenues were 113 million yuan, 159 million yuan, and 191 million yuan, with net profits of 17.405 million yuan, 18.418 million yuan, and 10.277 million yuan respectively.

Even then, the industry's flaws were apparent: growth relied almost entirely on store expansion. From IPO preparations to recent years, Raily's medical aesthetics centers only increased from 4 to 5.

Post-listing, while scale improved somewhat, profitability declined steadily into losses. From 2021 to 2023, revenues were 188 million yuan, 165 million yuan, and 189 million yuan, with net losses of 18.266 million yuan, 20.247 million yuan, and 37.779 million yuan. In the first half of this year, revenue was 117 million yuan with a net loss of 2.997 million yuan, showing slight improvement.

At IPO, the market had high expectations for Raily. In 2021, its stock price soared to nearly HK$4 per share, with a market cap approaching HK$20 billion. Today, it's fallen to HK$0.148 per share, with a market cap below HK$100 million.

Beauty Farm outperforms Raily because it operates mixed businesses, not purely medical aesthetics.

The company owns traditional beauty brands Beauty Farm and Beleish, medical aesthetics brand Xiu Ke'er, and sub-health management brand Yanyuan Healthcare.

In 2023, revenue reached 2.145 billion yuan (up 31.2%) and net profit 230 million yuan (up 108.2%). In the first half of this year, revenue was 1.138 billion yuan (up 9.7%) and net profit 126 million yuan (up 4.1%), showing early signs of growth bottlenecks.

EC Healthcare, focused on Hong Kong, spans medical, aesthetic, and veterinary services. In its latest fiscal year ending June 2024, revenue rose 8.7% to HK$4.211 billion, but net profit plunged 85.3% to HK$15.7 million.

Langji Holding, which crossed over from apparel to medical aesthetics, also faced years of performance pressure. During the cultivation period, its medical aesthetics business was even less profitable than traditional women's wear. Only after sustained M&A and achieving economies of scale did medical aesthetics become a core revenue driver.

Jinfa Labe (002762.SZ), preparing to merge a medical aesthetics company, faces dual pressures: years of struggles in its traditional maternal-infant business and ongoing losses in its new medical aesthetics venture.

Squeezed from All Sides

Modern urban beauties discover medical aesthetics through Xiaohongshu, Douyin, Kuaishou, or direct inquiries on So-Young, becoming potential customers. Once they enter medical aesthetics centers, they encounter products like Allergan's Hiko, Bloomage's Revofil, and Jinbo's collagen.

Offline and online channels funnel customers to medical aesthetics centers, where services are ultimately delivered with pharmaceutical and device support.

Yet this market's peculiarity lies in how these seemingly opulent centers remain squeezed by suppliers.

Pharmaceutical and device manufacturers hold the lifeblood of medical aesthetics. Every industry revolution stems from upstream technological advances.

Early medical aesthetics involved surgical "heavy" procedures. Recently, hyaluronic acid, botox, and lasers have popularized "light" treatments, now the mainstream.

Those controlling the industry's discourse reap easy profits. In recent years, companies like Allergan, Bloomage, and Jinbo have flourished. Allergan, dubbed the "Moutai of medical aesthetics," exemplifies profitability.

Meanwhile, platforms like So-Young, Douyin, Kuaishou, Xiaohongshu, Meituan, and Dianping—key traffic sources—take large chunks of medical aesthetics centers' marketing budgets. Strong regulation in this special industry also drives up customer acquisition costs.

Thus, while So-Young isn't yet profitable, that reflects competition, operational challenges, and its winner-takes-all ambitions.

Medical aesthetics centers, constrained by upstream costs, operate on low gross margins. Heavy reliance on traffic platforms inflates sales expenses. Little profit remains.

Unless these squeezed centers resolve their multi-sided pressures, profitability will remain elusive.