Yuyue Medical's triple "dilemma"

Recently, the price of a blood oximeter made by Yuyue Medical, which only cost a few dozen yuan, was raised to 1,380 yuan, which once put Yuyue Medical in the center of public opinion. Baidu search popularity is also high, and it has increased fivefold in December alone.

Among A-share listed companies, in addition to Yuyue Medical, companies such as Kangtai Medical and Kefu Medical also have blood oximeter production businesses. However, Yuyue Medical, which started out as an oxygen producer, occupies a leading position in the blood oximeter market, and its products account for more than 70% of the market share on JD.com.

However, the current epidemic dividend is receding at a lightning speed, and Yuyue Medical may be stranded on the beach. Yuyue Medical can only win new vitality by facing the current three major difficulties.

The first dilemma: growth dilemma

2020 was the highlight of Yuyue Medical, but it began to go downhill in 2021 and 2022. In 2020, Yuyue Medical's revenue increased by 45.08% year-on-year, and its net profit attributable to the parent company increased by 133.74% year-on-year. In 2021, Yuyue Medical's revenue increased by only 2.51% year-on-year, and its net profit attributable to the parent company increased by -15.73% year-on-year.

In the financial report for the first half of 2022, Yuyue Medical was even more "dangerous", with both operating income and net profit declining, with operating income down 1.11% year-on-year and net profit down 18.16% year-on-year.

From 2021 to now, Yuyue Medical's financial report data have shown that it has experienced a problem of weak growth. However, with the nationwide opening up in early December, many families with elderly people began to purchase blood oximeters, which became another scarce item after masks and medicines. Baidu data shows that the search index for blood oximeters in December increased by 6793% year-on-year from November.

Most of the oximeters on e-commerce platforms such as Taobao and JD.com are out of stock. Even if they are available, they will not be available until January 2023. For consumers, it is difficult to get an oximeter, but for Yuyue Medical, this is one of the few opportunities in the post-epidemic era. If we seize this market opportunity, we will have at least one month to make the fourth quarter report look good, and even make the 2022 annual report look good.

Currently, Yuyue Medical has two problems: product price increase and unauthorized recall of shipped products. The price of the Yuyue blood oximeter exposed on the Internet is currently 1,380 yuan, which is sold by a third-party flagship store, but the Yuyue Medical official store has not escaped the suspicion of secretly raising prices. Some netizens broke the news that the same model of Yuyue blood oximeter was actually sold for 94 yuan during the 88 Shopping Festival on the official website last year, and recently it has risen to 299 yuan.

Regarding the issue of Yuyue official flagship store privately recalling the products that had been shipped, Yuyue Medical staff explained that a temporary worker sent the wrong model, and immediately recalled the products after discovering the wrong model, and notified consumers via text messages. However, some consumers did not pay attention to the text messages, resulting in delayed feedback. At the same time, Yuyue Medical posted a Weibo post explaining the situation, but the post is no longer visible and is suspected to have been deleted.

The epidemic has made Yuyue Medical both a success and a failure. Yuyue Medical once leapt forward due to the epidemic, with a 130% increase in net profit in one year. Now, in the post-epidemic era, it can only resort to these means that damage the trust of its own consumers. Of course, the product price increase storm is only a microcosm of Yuyue Medical's growth dilemma. The growth dilemma did not arise overnight, and the core lies in its R&D dilemma.

Double Dilemma: Product Development Dilemma

Yuyue Medical’s investment in R&D has always been criticized.

In 2019, 2020, and 2021, the R&D investment was RMB 235 million, RMB 400 million, and RMB 426 million, respectively, accounting for 5%, 5.9%, and 6.1% of the revenue of the year, respectively. The industry leader Mindray Medical's R&D investment in 2020 (RMB 2.096 billion) was more than the total R&D investment of Yuyue Medical in three years. In this regard, Cao Qun, chairman of Yuyue Medical, said that although Yuyue Medical and Mindray are both in the medical device track, Yuyue Medical's To C products are a cost-effective model that wins by quantity, rather than a track led by technology and science.

Yuyue Medical's oximeter, which is currently at the center of the storm, also proves its To C product model. The current domestic oximeter market has many problems, such as serious product homogeneity, few high-precision products, and low cost performance. For example, the oximeter that was circulated online recently to measure the blood oxygen saturation of ham sausage is an example.

As a Class II clinical-free medical device, the principle of the oximeter is relatively simple. It is nothing more than using the different absorption capacity of hemoglobin carrying oxygen and hemoglobin not carrying oxygen to visible light and infrared rays to determine the proportion of oxygenated hemoglobin in the blood. This principle was proposed in the 1940s. However, the production of an oximeter with good applicability, high monitoring accuracy and good cost control is a great test of the oximeter R&D capabilities and financial strength of the manufacturer.

From the perspective of the medical device registration cycle, it takes about 13 months to register a Class II product, and 17.5 months to register a Class III product without clinical trials. Such industry characteristics determine that if medical device companies want to develop, they need to go hand in hand with R&D and M&A, which to a certain extent determines Yuyue Medical's "less R&D, more M&A" model.

Currently, Yuyue Group has more than 80 affiliated and controlled companies. For example, in May 2021, Yuyue Medical paid 366 million yuan to the transferor to acquire 50.993% of the shares of Zhejiang Kailite Medical Equipment Co., Ltd., entering the field of dynamic blood glucose.

There are huge disadvantages in this model, such as the difficulty in controlling product quality. On January 27, 2021, the Sichuan Provincial Drug Administration issued a notice on the results of medical device supervision and random inspections, showing that 15 batches of ultrasonic nebulizers produced by Yuyue Medical were unqualified.

But the most fatal thing is that when there is no suitable target in the market, can Yuyue Medical rely on the annual investment of less than 500 million yuan in research and development to support its future development? This is a question worth pondering.

Triple Dilemma: Dilemma of Going Overseas

Yuyue Medical's To C products are sold in large quantities. Currently, Yuyue Medical's domestic market share has reached saturation and it is unable to further increase its market share. We can get a rough idea of ​​this from its sales expenses that have been growing year after year.

In recent years, Yuyue Medical's sales expenses have been growing continuously. Among the sales expenses, salary and wage expenses, advertising and business promotion expenses, e-commerce platform fees, etc. are the main parts. Among them, in 2020, which was a highlight, Yuyue Medical's sales expenses were 754 million yuan, a year-on-year increase of 19%, and in 2021, the sales expenses were 945 million yuan, a year-on-year increase of 25%.

In other words, in 2020, the company achieved a revenue of 6.726 billion yuan with lower sales costs, while in 2021, the company spent 945 million yuan in sales expenses but only brought in a revenue of 6.894 billion yuan, a year-on-year increase of only 2.51%.

Therefore, when the domestic market tends to be saturated, only by accelerating the pace of going overseas can Yuyue Medical find a new round of growth opportunities. But when it comes to going overseas, Yuyue Medical's first reaction is to see if there are suitable targets overseas, or to go the M&A route. Judging from Yuyue Medical's recent announcement, Yuyue Medical plans to issue Global Depository Receipts ("GDR") and apply for listing on the SIX Swiss Exchange. After deducting the issuance costs, the funds raised from the issuance of GDRs are intended to be used for the further development of the company's core business and strategic investment, including mergers and acquisitions of high-quality targets.

In addition, Yuyue Medical is also actively establishing overseas subsidiaries, strengthening the construction of overseas localized teams, and accelerating the global market layout. For example, a German subsidiary was established in 2016 and a Thai subsidiary was established in 2021. However, from the current point of view, excluding the impact of the epidemic, the contribution of Yuyue Medical's overseas companies and global layout to revenue is not very high. In 2020, Yuyue Medical's overseas revenue was 1.878 billion yuan. In 2021, the overseas epidemic stabilized, and overseas sales revenue fell 13% year-on-year to 1.626 billion yuan.

Summarize

In general, the surge in Yuyue Medical's revenue, both domestically and abroad, is closely related to the epidemic. When the dividends from the epidemic recede, Yuyue Medical can only break through these three difficulties, find new sources of growth, and produce a steady stream of fresh water, so that it can leap over the dragon gate and become a new giant in medical devices, thus achieving the grand goal of entering the top 30 global medical devices by 2025.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.