Golden Baby replicated Langzi shares

Zebra Consumer Chen Biting

After years of planning, Kingfa Baby (002762.SZ) is trying to merge its invested Hanfei Medical Beauty into the listed company.

This involuntarily reminds the market of Langzi Holding (002612.SZ). Both are traditional apparel businesses in a downturn, and both want to use medical beauty as a breakthrough path.

However, Langzi Holding was not yet at the end of its rope when it led a series of medical beauty mergers and acquisitions, coinciding with the expansion period of this market, becoming China's leading medical beauty brand operator.

But today's Kingfa Baby is small in scale and has been losing money for years; the Hanfei Medical Beauty it wants to restructure has poor performance and has been losing money for years.

Can such a combination achieve a 1+1>2 effect?

Kingfa Baby's Restructuring

The A-share market may welcome a new medical beauty listed company.

Recently, Kingfa Baby disclosed a major asset restructuring plan, proposing to increase capital in Hanfei Investment and delegate voting rights, thereby controlling 88.47% of the voting rights of the company and making it a subsidiary to be included in the consolidated financial statements.

Hanfei Investment's main business is medical beauty, with its primary asset being Guangdong Hanfei Plastic Surgery Hospital Co., Ltd., which is a "Plastic Surgery (Level 3) Hospital" reviewed and rated by the Guangdong Provincial Health Commission. Another company, Guangzhou Hanfei Medical Beauty Hospital Co., Ltd., has also obtained Level 2 specialized hospital qualifications. According to the classification management measures for medical beauty surgical projects, Hanfei has the highest-level medical qualifications in the industry.

Kingfa Baby's (002762.SZ) investment in Hanfei has been ongoing for several years.

In April 2021, the company acquired a 36% stake in Hanfei Investment for 237.6 million yuan at a valuation of 668 million yuan.

In September 2023, it invested another 59.5059 million yuan to acquire an additional 13% stake, bringing its total shareholding to 49%. At that time, Hanfei Investment's valuation dropped to 458 million yuan.

The reason for the valuation decline was that Hanfei Investment faced significant operational pressure after the impact of a special period.

At the time of the initial investment, the performance commitment from the relevant parties was to achieve non-GAAP net profits of 50 million yuan and 60 million yuan in 2021 and 2022, respectively.

Under the influence of unfavorable external conditions, it was naturally difficult to fulfill. After friendly communication, the performance commitment was adjusted to non-GAAP net profits of 78 million yuan and 85 million yuan in 2023 and 2024, respectively, totaling 163 million yuan.

Even so, the performance commitment remains difficult to fulfill. Data shows that in 2022, 2023, and the first half of 2024, Hanfei Investment's net profits attributable to the parent company were -45.2892 million yuan, -19.879 million yuan, and -2.3902 million yuan (unaudited), respectively.

In 2023, Hanfei Investment achieved operating income of 284 million yuan, a year-on-year decrease of 17.77%; revenue in the first half of this year was 125 million yuan. As of the end of June this year, the company's total assets were 175 million yuan, and its net assets were -42.647 million yuan.

Moreover, Hanfei Investment's actual controller, Huang Zhaobiao, has been subject to court-imposed consumption restrictions due to personal involvement in other debt disputes and failure to fulfill payment obligations.

Given this, why is Kingfa Baby going to great lengths to spend real money to acquire this flawed company?

Kingfa Baby's own business difficulties have persisted for too long. Its traditional maternal and infant apparel and products business has shown no growth, with the company's revenue shrinking from over 400 million yuan in previous years to 200 million yuan last year. Performance has declined year after year, and it has been losing money since 2022, urgently needing a boost.

Kingfa Baby urgently needs to use the medical beauty business, which it has been planning for years, to enhance the value of the listed company. This story has already happened in the A-share market. What Kingfa Baby wants to replicate is precisely Langzi Holding.

The Langzi Path

How similar is today's Kingfa Baby to Langzi Holding (002612.SZ) back then?

Founded in 1996 in Shantou, Guangdong, Kingfa Baby's main business is maternal and infant apparel and products, with brands including LABI BABY, I LOVE BABY, and BABY LABI.

Langzi Holding was founded in Beijing, four years later than Kingfa Baby, mainly focusing on high-end women's clothing, with brands including the main brand LɅNCY, the leisure and sporty comfort brand liaalancy, and the cost-effective, youthful brands LANCY FROM 25 and LIME FLARE.

Not long after going public, Langzi Holding encountered a business bottleneck, with declining revenue growth and profitability. Thus, it began exploring business expansion early.

As early as 2005, Langzi Holding introduced the South Korean high-end women's clothing brand MOJO S.PHINE; in 2014, it became the largest shareholder of the South Korean children's wear listed company Agabang (stock code: 013990), acquiring brands such as Agabang, ETTOI, and Design skin—becoming a direct competitor of Kingfa Baby; in 2019, it acquired the Japanese mid-to-high-end women's clothing brand m.tsubomi.

However, these industry mergers and acquisitions did not break away from the traditional apparel business and failed to truly solve the company's core problems.

Langzi Holding decided to cross boundaries, officially entering the medical beauty industry in 2016. That year, it invested in the South Korean plastic surgery medical management institution "Dream Medical Group Co., Ltd" and the plastic surgery hospital "Dream Plastic Surgery," gaining the high-end comprehensive medical beauty brand "Milan Baiyu" and the light medical beauty chain brand "Jingfu Medical Beauty" in the domestic market.

The market's enthusiastic response gave the company the confidence to continue its acquisition spree. In 2018, it acquired the Xi'an medical beauty brand "Gaoyisheng"; in 2019, it took control of Xi'an Meilifang; from 2022 to 2024, it successively acquired Kunming Hanchen, Wuhan Wuzhou, Wuhan Hanchen, and Zhengzhou Jimei.

As of the end of June 2024, Langzi Holding's medical beauty segment operates multiple medical beauty brands, including "Milan Baiyu," "Hanchen Medical Beauty," and "Jingfu Medical Beauty," in core cities such as Chengdu, Xi'an, Shenzhen, and Wuhan. It has a total of 38 institutions, including 9 comprehensive hospitals and 29 clinics.

In China's medical beauty market, Langzi Holding has become an absolute leading operator. Last year, the company's medical beauty segment achieved operating income of 2.127 billion yuan, a year-on-year increase of 27.75%; in the first half of this year, it was 1.194 billion yuan, a year-on-year increase of 6.02%.

Ambition and Challenges

It's not just Langzi Holding and Kingfa Baby that are eyeing the medical beauty business.

The Hong Kong stock market already has several medical beauty listed companies, such as EC Healthcare (02138.HK), Ruili Medical Beauty (02135.HK), and Beauty Farm (02373.HK); Yimei Network and Yestar Plastic Surgery have attempted to launch IPOs on the Hong Kong Stock Exchange; there are also US-listed Aurora Medical Beauty and New Third Board-listed Huahan Shares.

In the long term, medical beauty is a sunrise industry. With rising consumer spending power, awakening medical beauty awareness, and the industry's increasing maturity, the potential for growth is considerable.

Deloitte's "China Medical Beauty Industry 2023 Insights Report" shows that China's medical beauty market size exceeded 200 billion yuan in 2023, with a market growth rate of 20%; it is expected to maintain an average annual compound growth rate of about 15% from 2023 to 2027.

Currently, China's medical beauty market is still in its early stages of development, with a penetration rate of just over 10%. In contrast, the US market is close to 20%, and South Korea is near 30%.

In the short term, high growth potential combined with the scarcity of targets makes medical beauty a great story for the capital market.

Langzi Holding once enjoyed several rounds of big gains because of this. In just a few months in 2021, the company's stock price rose nearly 10-fold, becoming legendary.

Kingfa Baby is even more so, with its stock price basically moving in response to medical beauty news. In 2021, it announced its investment in Hanfei, soaring to a market value peak; in 2023, it increased its stake, and the miracle repeated; recently, after announcing its controlling stake, it immediately hit the limit-up.

However, once you return to reality, you find that the medical beauty business still faces very severe challenges.

The Hanfei that Kingfa Baby plans to consolidate has been losing money for years. If it cannot improve in the short term, it will not only fail to contribute profits to the listed company but will also become a drag.

Even Langzi Holding, which has already achieved economies of scale, has not yet made medical beauty the absolute core of its performance. In 2024, the revenue growth and gross margin of its medical beauty segment lagged behind its traditional apparel business; in the first half of this year, the revenue growth and gross margin of the medical beauty segment further declined.

Langzi Holding can still rely on its traditional apparel business to support its fundamentals and nurture its medical beauty business. But how can Kingfa Baby, which has been in long-term losses, secure a time window for transformation?