The "leading" health supplement company By-Health was removed from MSCI!

According to media reports, the well-known index company MSCI adjusted its China index on November 25, removing 17 stocks, including By-Health.

As the former "leader" in the health supplement industry with a market value once exceeding 60 billion yuan, By-Health's removal from MSCI reflects its current difficult situation.

According to the third-quarter report, By-Health's net profit for the first three quarters of this year was 868.6 million yuan, a year-on-year decline of 54.31%; in the third quarter alone, it reported a net loss of 22.42 million yuan, a year-on-year drop of 106.3%. Over a longer period, this is By-Health's worst third-quarter performance in the past decade.

Affected by its performance, By-Health's stock price has also been sluggish.

As of the latest closing, By-Health's stock price was 12.81 yuan per share, with a total market value of only 21.8 billion yuan. Compared to its peak, By-Health's stock price has fallen by over 70%, and its market value has shrunk by more than 40 billion yuan.

In his New Year's speech, By-Health Chairman Liang Yunchao wrote that the keyword for 2024 is "delivery," meaning to test and deliver the results of previous reforms and adjustments in operations.

Based on current performance, these reforms and adjustments do not seem to have been "delivered."

Weak Growth

As early as 2023, By-Health's performance had already shown signs of "weak growth."

According to financial reports, in the third quarter of 2023, By-Health's revenue and net profit were 2.186 billion yuan and 355.7 million yuan, respectively, with growth rates of 12.75% and -17.96%. Compared to the second quarter's revenue growth of 28.2% and net profit growth of 33.89%, By-Health's performance growth had already begun to decline significantly in the third quarter.

In the following quarters, By-Health's performance continued to deteriorate.

Specifically, from the fourth quarter of 2023 to the third quarter of 2024, By-Health's revenue growth rates were -4.53%, -14.87%, -20.93%, and -48.76%, while net profit growth rates were -61.06%, -29.43%, -68.12%, and -106.3%.

Behind the performance, aside from the sluggish market, By-Health's own problems are even more severe.

In the past, By-Health's success was largely due to its channel advantages. While traditional domestic health supplement companies opted for direct sales, Liang Yunchao broke the norm by making By-Health the first health supplement company to enter pharmacies. By establishing a comprehensive sales network in pharmacies, By-Health built a solid moat.

However, as offline pharmacy channels gradually declined, By-Health's moat began to "collapse." According to Menet data, in China's physical pharmacies, retail sales in the first half of 2024 reached 298.6 billion yuan, a year-on-year decline of 3.7%. Looking specifically at health supplement sales in physical pharmacies, they have been fluctuating downward since 2022, with a 24.2% year-on-year decline as of June 2024. Of course, By-Health has also been building online sales channels, but domestic online revenue still accounts for less than 30%. According to the 2024 half-year report, By-Health's domestic online revenue was 728 million yuan, while domestic offline revenue was as high as 2.477 billion yuan.

Beyond channels, the decline in the lifecycle of major products is another reason. Currently, By-Health's main brands include By-Health, Jianliduo, and Life-Space, but most revenue still comes from "By-Health." In the first three quarters of this year, the main brand "By-Health" generated revenue of 3.194 billion yuan, a year-on-year decline of 29.20%. The sharp decline in the main brand's performance is the primary reason for the significant drop in revenue and net profit in the first three quarters.

Future Concerns

Although the continuous decline in performance and stock price has fully released pessimistic sentiment, unfortunately, By-Health's challenges are just beginning.

This is because, whether it's channel issues or product issues, significant improvements are unlikely in the short term.

From a channel perspective, the decline of pharmacy channels and the rise of online channels have become irreversible trends.

According to media statistics, the growth of offline channels in China's VDS industry has slowed, while online channels now account for over 40%, with channel structure changes stabilizing. For By-Health, its heavy reliance on pharmacy channels may exacerbate current difficulties.

Of course, By-Health is not unaware of this issue.

As early as 2017, By-Health proposed an "e-commerce branding" strategy, focusing on younger consumers, transitioning from B2C to C2B digitization, and developing a product system differentiated from offline channels to create new growth points.

From an investment perspective, since 2017, By-Health's marketing expenses have surged. Financial reports show that from 2017 to 2023, By-Health's marketing expenses were 973.3 million yuan, 1.28 billion yuan, 1.65 billion yuan, 1.818 billion yuan, 2.478 billion yuan, 3.169 billion yuan, and 3.859 billion yuan. In seven years, marketing expenses have increased sixfold.

In terms of results, as of the third quarter, domestic online revenue still accounts for less than 30%, indicating limited success in its strategy.

From a product perspective, By-Health's core brands focus on traditional dietary supplements like protein powder and vitamins, but there are no major products targeting the mainstream market's "more purpose-driven functional products."

From an R&D perspective, in the first three quarters of this year, By-Health's R&D expenses were only 116 million yuan, compared to 2.427 billion yuan in marketing expenses—the answer is clear.

Earlier this year, Liang Yunchao wrote in his letter to shareholders, "Eight More Years to Build a Strong Technology-Driven Enterprise": He hopes to spend another eight years completing the transformation into a strong technology-driven enterprise and becoming one of the most technologically advanced and innovative VDS companies globally.

Based on By-Health's current performance, achieving this goal will not be easy.