CoQ10 demand in China persists but gross margin is low – Doctor's Best owner Kingdomway
Low gross margin from its coenzyme Q10 (CoQ10) ingredient and finished product business was one of the reasons for its decline in net profit.
The Shenzhen stock exchange-listed company announced its half-year results on August 29.
Total revenue was down slightly by 1.8 per cent to RMB$1.52bn (US$214.3m).
Net profit attributable to shareholders decreased 29.3 per cent to RMB$130.1m (US$18.3m).
Health supplements, its largest portfolio, saw revenue climb 2.80 per cent to RMB$966m (US$135.9m). The company also runs feed additive and pharmaceutical business.
Coenzyme Q10 is one of the company’s main health supplements.
Under the Doctor’s Best brand, the company has identified CoQ10 alongside fish oil as its key focus under the cardiovascular health product range.
In China, the company has identified three key pillars of focus for Doctor’s Best.
Aside from cardiovascular health, anti-ageing and “multi-precision nutrition” are the other two pillars.
Its anti-ageing range largely consists of NMN products while its “multi-precision nutrition” range cuts across bone and joint health, beauty-from-within, maternal and infant health, and others such as lutein and vitamin C.
Claiming to be the world’s largest producer of CoQ10, the company said demand for the ingredient and its finished products remained high, but market prices trekked at the lower end.
Revenue from its CoQ10 business was 1.89 per cent lower than last year at RMB$379.7m (US$53.4m).
Gross margin from CoQ10 was also 11.53 per cent lower than last year to 46.41 per cent.
The reduced gross margin and revenue were cited as a main factor in the drop in its net profit.
Another reason causing the fall was the reduced sales of vitamin A due to the temporary halt in production.
The stoppage happened in January due to a flash explosion that occurred at its vitamin production facility’s wastewater management area. Production only resumed on April 2.
As a result, sales of vitamin A were 35.92 per cent lower than last year. However, the company said that the production capital was lower and gross margin had gone up.
The company also produces ingredients such as algae oil DHA, plant-derived ARA, vitamin A, D3, K2, nattokinase, pyrroloquinoline quinone (PQQ), and nicotinamide mononucleotide (NMN).
Social commerce aid
Kingdomway added that the boom in social commerce in China, alongside increasing health awareness, has pushed up health supplements sales.
It sells the products into China via cross-border e-commerce channels including Tmall, VIP, Douyin, Kuaishou, and RED.
“The idea of ‘preventative healthcare’ has become mainstream due to a change in perceptions and demands…At the same time, as social commerce gains traction and convenience of e-commerce, there has been significant growth in e-commerce channels, which has also promoted industry growth.
“As a result, sales from the company’s Doctor’s Best products have continued to grow, and profits have strengthened.”
Aside from Doctor’s Best, its other finished products include Zipfizz and Viactiv.
With over 300 SKUs, CoQ10, glucosamine chondroitin, magnesium lysinate glycinate 100% chelated, vitamin D3, and vitamin K2 are some of its bestsellers in the US where the brand originated from.
Zipfizz, on the other hand, focuses on energy powders sold in a tube. It is positioned as a hydration, lifestyle drink containing vitamins, minerals, and electrolytes.
Viactiv is a chewable tablet mainly targeting bone and immune health.
