Fangzheng Securities: Focus on leading OEMs and segmented vertical brands in the new consumption of health products, recommending SIRIO and others

According to the Zhitong Finance APP, Founder Securities has released a research report stating that the current Chinese nutrition and health food market is undergoing a significant transformation. The new consumer market is vibrant and exhibits several characteristics, and actively embracing new consumption is essential to seize industry opportunities. It is important to focus on leading B-end enterprises that actively grasp the trends of new consumption transformation, as new consumption drives performance growth and may bring about a valuation switch in the sector. Recommendations include: SIRIO (300791.SZ), which aims to enhance its share of high-value customers in the Chinese market by 2025, focusing on new consumption; and Baihe Co., Ltd. (603102.SH), which is expanding its cross-border business and entering the new pet nutrition sector to capture new industry trends.

Founder Securities' main viewpoints are as follows:

New Channels

Four core incremental directions: interest e-commerce and grass-planting communities, online cross-border, private domain e-commerce, and offline new retail. a) Interest e-commerce led by Douyin and grass-planting communities centered around Xiaohongshu are thriving, with Douyin's health product sales expected to grow by 52.5% year-on-year in 2024; b) Online cross-border health products are experiencing explosive growth, with Douyin's global purchase GMV expected to increase by 204% year-on-year in 2024; c) Private domain e-commerce features high customer spending and strong repurchase rates, and is expected to be in a rapid development phase; d) Offline new retail supermarkets are in the process of expanding stores, with significant expected growth in health product sales.

New Trends

Diversification of efficacy and snack-like dosage forms, which raises higher requirements for R&D capabilities on the supply side. In terms of efficacy, the current "self-care economy" is thriving, and consumers' expectations for efficacy have become more specific and personalized; in terms of dosage forms, emerging forms such as gummies and beverages combine palatability and convenience, which helps cultivate consumers' daily usage habits.

All Demographics

Health product consumption spans all age groups. Currently, with the popularization of health and wellness concepts and various factors such as work pressure, young people have become a new force in health product consumption. From a gender perspective, early consumption was primarily driven by the "she economy," with core demands for oral beauty, weight management, and women's health; currently, the "he economy" is active, with manufacturers actively laying out products in liver protection and anti-fatigue areas.

Advantages of Leading B-end Enterprises

The firm believes that with the rise of new consumer brands in the nutrition and health food industry, C-end sales in the nutrition and health food sector are expected to continue growing at a mid-to-high single-digit CAGR in the future. Nutrition and health foods will possess both efficacy and emotional consumption attributes, highlighting the advantages of leading B-end enterprises, with concentration among the top players expected to accelerate.

From the C-end perspective, the market size of China's dietary supplement industry is expected to reach 232.339 billion yuan in 2024, growing by 3.7% year-on-year. The industry's growth rate has slowed mainly due to the high base in 2023 and a significant decline in pharmacy channels in 2024, but this does not change the long-term stable growth trend of the industry. The firm believes that since China's per capita consumption of nutrition and health foods is currently significantly lower than that of mature markets such as the US, Japan, and Australia, and the penetration rate is low, the industry C-end is expected to continue growing at a mid-to-high single-digit CAGR in the future, driven by the national "Healthy China" strategy, stable economic development, and the expansion of consumption across all age groups. In the future, nutrition and health foods will possess both efficacy and emotional consumption attributes, and companies with stronger R&D innovation capabilities and scale advantages will gain higher market shares. The B-end market is expected to further concentrate among leading players, and in the process of seeking new consumer brands, leading B-end enterprises are likely to achieve revenue growth that exceeds expectations Risk Warning: Domestic and overseas demand may fall short of expectations, overseas factory integration may not meet expectations, risks of intensified market competition, food safety risks, etc