With the advent of the era of big health, will 21st Century Vitamins still be able to tell a good story?

Yuer Lake

Chaoqi.com's "Yu Jian" Column

Modern life is stressful, and increasingly demanding work schedules are taking a toll on our health. Vitamin supplements and other nutritional supplements have long been essential for working professionals. The impact of the pandemic has also heightened public awareness of health issues. Especially in the post-pandemic era, the surge in demand for health tonics has revitalized the nutritional supplement industry.

Benefiting from this favorable market trend, Minsheng Health, a well-known domestic vitamin manufacturer, officially listed on the Shenzhen Stock Exchange's ChiNext board in September this year. On its first day of trading, its stock price surged by over 240%, and its market capitalization soared to 12.4 billion yuan at one point. Based on the closing price that day, a single winning bid could have yielded a profit of over 10,000 yuan. However, on the second day after its listing, Minsheng Health's stock price plummeted by nearly 15%.

To this day, its stock price remains sluggish, even falling below its IPO price, and its market capitalization has shrunk to around 8 billion yuan. The high opening and subsequent decline of the stock price also indicates that the capital market is not optimistic about Minsheng Health's potential. Compared to brands like Centrum and By-Health, Minsheng Health's journey in the nutritional supplement industry may have only just begun.

Established company seeks revitalization, but its IPO journey raises questions.

Amid the booming health industry, Minsheng Health, which started with vitamins, has seen its performance soar in recent years. From 2018 to 2022, its revenue increased from 311 million yuan to 547 million yuan, with a compound annual growth rate of 11.96% over five years. In the first half of this year, its revenue and profit also maintained growth of over 10%.

From an investment perspective, although Minsheng Health's performance growth is not significant, it remains a stock with potential. However, from its IPO period to its successful listing, Minsheng Health has faced constant skepticism, and its listing journey has not been smooth sailing.

In late 2021, Minsheng Health submitted its listing application to the Shenzhen Stock Exchange for the first time. Its purpose for listing is very clear: to leverage capital to further expand its nutritional supplement business.

The history of 21st Century Vitamins dates back to 1985, giving it over 30 years of history. In today's era of consumption upgrading, leveraging the power of the capital market to revitalize products is the best option for the development of the public health industry.

However, due to factors such as the pandemic and expired financial data, Minsheng Health's IPO has been terminated multiple times. The data disclosed in the prospectus and the inquiry letter from the Shenzhen Stock Exchange have amplified its internal problems.

Firstly, during the reporting period, Minsheng Health exhibited several irregularities in its financial practices. For example, it provided loans and guarantees to its controlling shareholder, Minsheng Pharmaceutical, amounting to hundreds of millions of yuan. Simultaneously, Minsheng Holdings, the controlling shareholder of Minsheng Pharmaceutical, engaged in multiple fund transfers with Minsheng Health.

It's worth noting that Minsheng Health distributed a one-time dividend of 150 million yuan in 2021, prior to its IPO. This is significant considering that Minsheng Health's total net profit from 2018 to 2020 was only 128 million yuan. Regardless of its motives, Minsheng Health's dividend distribution appears highly unusual.

Secondly, the Shenzhen Stock Exchange's most pressing concern in its inquiry was the industrial structure of the company's health and wellness business, and whether there were any significant risks involved. According to the prospectus, revenue from vitamin and mineral supplements was RMB 409 million, RMB 469 million, and RMB 531 million in 2020, 2021, and 2022, respectively, accounting for over 93% of total revenue in each year.

These data all indicate that the health industry has a very singular structure, heavily reliant on vitamin products. Although vitamins and other nutritional supplements have been highly sought after by consumers in recent years, if this growth momentum weakens, it will inevitably have a significant impact on the performance of the health industry.

However, regardless of the circumstances, Minsheng Health has now successfully entered the capital market. With ample funding, its development goals seem very clear, but in reality, besides its singular focus on a single industry, Minsheng Health is also plagued by many other problems.

Limited distribution channels and marketing-driven sales

The first item on the use of funds raised by Minsheng Health in this IPO is for the technological upgrading of its vitamin and mineral OTC product production line. In simpler terms, it's about expanding production capacity. From its strategic layout, it seems to be aiming to solidify its core vitamin business. However, Minsheng Health's industrial structure is not just a matter of a single product; its performance is entirely supported by its flagship product, 21st Century Vitamins.

From 2020 to 2022, the sales revenue of 21st Century Vitamins was RMB 396 million, RMB 423 million, and RMB 439 million, respectively, accounting for 91.32%, 86.7%, and 80.46% of total revenue. Although the revenue share has been declining year by year, the reality is that 21st Century Vitamins' capacity utilization rate has remained at 100% for many years.

However, the capacity utilization rate of its mineral tablets is only around 55%. Therefore, this capacity expansion and renovation is actually aimed at upgrading the production capacity of 21st Century Vitamins. With the release of future production capacity, there is no doubt that 21st Century Vitamins' revenue will take off again.

However, from another perspective, the structural problems of the public health industry have not been completely resolved, and may even exacerbate its over-reliance on a single industry. At the same time, there are significant risks in its channel development.

Currently, Minsheng Health primarily operates on a distribution model. According to its prospectus, the number of its major distributors increased from 22 to 24 between 2020 and 2022. Notably, nearly 70% of its revenue comes from its top five distributors.

Under this model, Minsheng Health doesn't have much say; instead, the dominant power lies with the major distributors. Furthermore, in terms of sales distribution, Minsheng Health's stronghold remains in East China, centered around Jiangsu and Zhejiang provinces. In 2020, sales in East China reached 255 million yuan, accounting for 46.81% of revenue.

Although Minsheng Health has not disclosed the specific number of its distributors, it still lags far behind brands such as Centrum and By-Health.

From 2020 to 2022, By-Health had over 1,000 distributors each year. While the number decreased slightly in the first half of this year, it still reached 944. Centrum, on the other hand, covers nearly 300,000 offline pharmacies nationwide. These two brands have established nationwide distribution channels, while Minsheng Health remains a regional brand.

This also indicates that 21st Century Vitamins lacks strong core product competitiveness, and its sales growth is mainly driven by marketing. In the past two years, Minsheng Health's sales expenses have exceeded 170 million yuan, accounting for nearly 40% of its revenue, with half of the expenses spent on advertising and marketing.

In its early days, 21Viagra gradually gained popularity through advertising on local television stations. In 2002, it hired the famous host Ni Ping as its spokesperson and spent a lot of money to secure multiple advertising slots on CCTV, which finally made it known to the Chinese public.

Even now, 21st Century Vitamins still relies heavily on marketing. It's undeniable that many products, especially pharmaceuticals and nutritional supplements, rely on extensive marketing to achieve high sales volumes. However, for 21st Century Vitamins, a brand with over 30 years of history and ranking fifth in the domestic over-the-counter vitamin and mineral category, brand aging is an issue it must address.

The nutritional supplement market is booming, but a second product has yet to emerge.

Over the past few decades, my country's health supplement industry has experienced rapid growth. According to Euromonitor data, the domestic health food market reached 216.765 billion yuan in 2021, and the market size of vitamins and dietary supplements exceeded 200 billion yuan in 2022.

Especially with the improvement of national consumption levels and health awareness, health supplements have become necessities in daily life. However, in this large market, not only are the categories dazzling, but the competition is also extremely fierce.

In the vitamin sector alone, where Minsheng Health operates, there are not only foreign giants such as Centrum and Amway Nutrilite, but also domestic health brands such as By-Health and Infinitus, as well as traditional pharmaceutical companies such as Conba and Tongrentang.

The reason why so many manufacturers are focusing on the health supplement market is simple: China has a huge population base and enormous market potential. Coupled with the impact of the pandemic and the arrival of an aging society, health supplements are a promising business with a long-term future.

Currently, Minsheng Health's product portfolio mainly falls into two categories: vitamins and minerals, and probiotic products. The former is primarily represented by 21st Century Vitamins, while other products such as mineral tablets only achieved a revenue exceeding 40 million yuan last year, and health food revenue remains at the 10 million yuan level. Furthermore, their brand recognition is far inferior to that of 21st Century Vitamins.

The company's probiotic business was acquired through the merger and acquisition of Minsheng Health Technology, a subsidiary of Minsheng Pharmaceutical. It's worth noting that after the acquisition in 2020, probiotic revenue actually declined, falling from 23.8223 million yuan in 2020 to 14.4892 million yuan in 2022. Based on the revenue data, probiotics are not a key focus for Minsheng Health.

So where should the focus of public health initiatives lie? Looking at the vitamin and mineral sector, there are only two directions: OTC (over-the-counter) and health supplements. Judging from the use of raised funds, the majority of the funds were spent on health supplement projects.

According to the prospectus, the health supplement project, once completed, will have an annual production capacity of 1.08 billion tablets of vitamin and mineral products and 350 million soft capsules. So what specific health supplements will this include? A glimpse into its research and development projects can provide some insight.

Among its ongoing R&D projects, those with the largest R&D expenditure include products such as broad-spectrum vitamins, osteoporosis prevention supplements, weight management products, and powdered vitamins; among the completed R&D projects are products such as liver-protecting and immune-boosting Q10 capsules, melatonin, and zinc-selenium capsules.

Conclusion

As a product on par with Brain Gold, 21st Century Vitamins boasts a glorious past, contributing significantly to the growth and expansion of Minsheng Health. However, over time, sales of 21st Century Vitamins declined, only to rebound recently. The successful IPO, in particular, has provided Minsheng Health with a new opportunity, injecting strong momentum into the future of 21st Century Vitamins.

However, with the arrival of the era of nationwide health consciousness, Minsheng Health is struggling to compete with large enterprises like By-Health and Jiangzhong, both in terms of product offerings and distribution channels. Given the health dividends, how can Minsheng Health further increase its market share of 21st Century Vitamins and extend its brand influence into the new health food market to tell a compelling story?