US Stock IPO Outlook | Baotai Holdings: Niche Categories "Leveraging" Large Markets Offline Channels + Single Brand May Struggle to Maintain High Growth

Under the trend of refined parenting, the sub-market of baby and child washing and skincare is gradually rising. According to incomplete statistics, in 2022 alone, children's washing and care brands such as Evereden, MAYKERR, and HaiGuiBaBa received investments in the tens of millions and hundreds of millions, while DaikeSi secured five rounds of financing over five years. In 2023, RunBen Co., Ltd. (603193.SH) also went public on the A-share market, becoming the "first stock in baby care."

With the industry developing rapidly, BaoLuoTaiQi is making continuous strides towards an IPO in the US stock market. Recently, the parent company of Fujian BaoTai Technology Co., Ltd., which is based in Hunan Town, Changle, Fuzhou, Blue-Touch Holdings Group Co., Ltd. (hereinafter referred to as "BaoTai Holdings") updated its prospectus with the U.S. Securities and Exchange Commission (SEC), with the stock code BBCH, intending to list on NASDAQ in the United States. It publicly disclosed its prospectus on September 30, 2022.

Public information shows that BaoTai Holdings received a notice of filing for overseas issuance and listing from the International Cooperation Department of the China Securities Regulatory Commission on May 30, 2024 (Guo He Han [2024] No. 1152), allowing it to issue no more than 2.3 million shares of common stock and list on the NASDAQ stock exchange in the United States.

Emphasis on Marketing Over R&D Leads to Slowing Growth

According to the prospectus, BaoTai Holdings began operations in 2014, primarily engaged in the design, development, and sales of baby skincare and washing products. In 2015, the "BaoLuoTaiQi" brand launched high-end camellia oil mother and baby products. In 2019, BaoTai Holdings completed an upgrade of its brand VI in Chinese and entered the Chinese market under the "BaoLuoTaiQi" brand.

BaoTai Holdings' main product lines include two major series: baby skincare and washing products, and household cleaning products. Representative products in the baby skincare line include camellia oil body oil, camellia oil moisturizing lotion, camellia oil emulsion, and camellia oil two-in-one shampoo and shower gel. In terms of household cleaning products, the main products include fabric softeners, laundry detergents, and multi-functional cleaners.

In terms of performance, during the reporting period from 2022 to June 30, 2024, the company's revenues were $826.55 million, $965.61 million, and $528.14 million, with year-on-year growth rates of 16.82% and 8.28%, respectively; during the same period, net profits were $111.11 million, $135.43 million, and $75.82 million, with year-on-year growth rates of 21.89% and 4.26%. Both revenue and net profit growth rates have declined from double digits to single digits, indicating a slowdown in growth.

By product, baby washing and household cleaning products each account for half of the revenue. In 2022 and 2023, the sales of BaoLuoTaiQi's baby skincare products accounted for 47.06% and 51.70% of total revenue, respectively; household cleaning products accounted for 52.94% and 48.30% of total revenue, showing a relatively balanced overall distribution

From the perspective of gross profit margin performance, Baotai Holdings has shown commendable results. In 2022 and 2023, the gross profit margins for infant skincare and personal care products remained stable at around 49%, while the gross profit margin for household cleaning products reached about 30%. The overall gross profit margin also increased from 39.09% in 2022 to 40.69% in 2023.

Behind the slowdown in performance growth, Baotai Holdings' promotional expenses are significantly higher than its research and development expenses. During the reporting period, the company's R&D expenses were 498,600 yuan and 240,700 yuan, accounting for only 5.80% and 2.49% of total revenue, respectively; meanwhile, the sales expenses were 577,800 yuan and 602,900 yuan, accounting for 7.0% and 6.2% of total revenue. Notably, in 2023, the company's sales expenses were nearly 2.5 times its R&D expenses. This phenomenon of "light R&D and heavy marketing" may expose the company's insufficient investment in R&D, potentially affecting its long-term competitiveness.

Moreover, relying solely on the "Baolu Taiqi" brand, with subsequent product launches being interrupted, may also indicate that Baotai Holdings' product sales are becoming sluggish. After the failure of the big product strategy, consumer enthusiasm has declined, and market shipment volumes are easily affected, leading to a slowdown in performance growth.

The infant and child care sector has vast potential

Channel competition awkwardly "falls behind"

Thanks to the continuous rise of scientific and refined parenting concepts and the rapid expansion of online channels, the infant and child care market within the personal care industry has experienced rapid development, with the market size expected to exceed 50 billion yuan by 2027. According to data cited from the inquiry letter regarding the listing review of Runben Co., Ltd., the market size of China's infant and child care market grew from 21.401 billion yuan in 2018 to 29.711 billion yuan in 2022, with a compound annual growth rate of 9.82%. By 2027, the market size of China's infant and child care market is expected to exceed 50 billion yuan, demonstrating extremely broad market space.

Specifically, from the channel perspective, online channels have maintained a high growth trend and are gradually emerging as the main sales channel in the infant and child care market. According to data cited from the inquiry letter regarding the listing review of Runben Co., Ltd., the compound annual growth rates for online and offline channels in the infant and child care industry from 2017 to 2022 were 25.08% and 3.01%, respectively, with online channel growth far exceeding offline; from 2022 to 2027, the compound annual growth rates for online and offline channels in China's infant and child care industry are expected to be 20.21% and 1.89%, respectively, with online channels continuing to maintain high growth and outpacing offline channels; by 2027, the online market share for infant and child care is expected to rise to 64.3%, becoming the main sales channel and source of growth in this sub-industry.

  Specifically regarding Baotai Holdings, it seems to choose a path contrary to the industry, being more enthusiastic about offline rather than online.

In terms of building e-commerce channels, Baotai Holdings is in an awkward phase of "missing the boat." Currently, no relevant official stores have been found on major online shopping platforms such as Tmall, Douyin, Xiaohongshu, and JD.com. The absence of online sales channels and the blank slate of starting from scratch are clearly more difficult to fill.

Regarding online channels, the company stated that in the next three to five years, it plans to establish online sales channels without affecting the existing offline sales network and is considering creating new brands or developing new products exclusively for online sales, indicating that it does not seem to be "enthusiastic" about building e-commerce channels. As of 2023, there are 21 offline distributors cooperating with the company, covering multiple provinces including Fujian, Shandong, Jiangsu, Hunan, and Zhejiang. Channel expansion is relatively slow, and offline channels also face certain market challenges.

It is worth noting that when physical supermarket channels are also struggling with weak growth. The prospectus shows that Baotai Holdings will still focus on offline channels in the future. In the short term, it plans to improve brand awareness and company profitability by launching new products and expanding its offline distribution network; in the next five years, the company aims to expand existing sales channels through establishing flagship stores, opening franchise stores, selling products through third-party retail agencies, and merging and acquiring suitable distributors.

From the current state of the children's personal care market, it is still in a period of multi-brand competition, with both overseas and local brands coexisting, and the market is relatively fragmented. New brands are expected to ride the digital fast track of the internet to share the cake, but overall, the situation remains uncertain. Most brands are still trapped in homogeneous competition and price wars, hoping to break out through high exposure and high traffic via the internet and e-commerce channels, which increasingly makes Baotai Holdings' style appear conservative.

In summary, the infant and child personal care sector is growing rapidly, with high gross margins, making it a solid golden track. Currently, with numerous brands competing, Baotai Holdings also faces issues such as "light R&D and heavy marketing" and a singular brand. If it does not compete for the market in a timely manner, it may fall behind in the race