Giant Biogene's recovery fundamentals are improving, with new-customer expansion, self-operated channel upgrades, and the new-product pipeline supporting future growth

Overview

The report reviews Giant Biogene's first-half 2026 results and management roadshow information. Its core conclusion is that the company has entered the early stages of recovery following external negative events and operational imbalances in 2025. Morgan Stanley is positive on the brand recovery, self-operated e-commerce capabilities, new-customer acquisition, new-product pipeline, and potential of the medical aesthetics business. It maintains its HK$43.00 target price and names the company a Top Pick.

Core views

First, Morgan Stanley views the first-half 2026 performance as a relatively rare V-shaped recovery in the consumer sector: Giant Biogene's sales and operating profit both increased by approximately 20% sequentially, reflecting the resilience of its product foundation and management system, as well as the ability of its self-operated business to quickly make up for the previous shortfall. After the results announcement, the share price fell 6% on August 18 and was down as much as another 7% on the morning of August 19, before recovering its losses and ultimately rising 1.2%. Over the same two days, the Hang Seng China Enterprises Index was broadly flat. The report believes this volatility was driven more by short-term trading factors and did not fully reflect the business improvement. The recovery remains at an early stage. The high selling expenses that concern the market primarily stem from the company's efforts to rebuild brand momentum and concentrate support on new products such as the Ultra-Translucent Stick and medical aesthetics injectables. Brand expenses increased both year over year and sequentially in the first half of 2026, but management expects brand investment to decline year over year in the second half. E-commerce traffic expenses are expected to remain broadly stable between the first and second halves. As repurchases, net promoter scores, and new-customer acquisition improve, Morgan Stanley believes there is scope for marketing investment to gradually normalize. The company expects online selling expenses to be higher in the second half than in the first, but the expense structure is improving: influencer livestreaming's share of e-commerce sales declined from more than 50% in the first half of 2025 to approximately 30% in the first half of 2026. The report estimates that self-operated sales increased by more than 30% during the period, while influencer livestreaming sales declined by more than 40%. This means the company will continue working with top influencers, but its reliance on a small number of influencers to meet sales targets has declined significantly, helping it better manage operating expenses during events such as Double 11. New-product performance provides important evidence of the recovery. Within seven days of launch, the Ultra-Translucent Stick generated RMB30 million in GMV through self-operated channels, reaching RMB100 million within 100 days. The company is confident it can meet the product's 2026 revenue target of RMB200 million and believes its medium- to long-term scale could reach RMB1 billion. Approximately 70% of buyers were new customers, with only approximately 30% overlap with Collagen Stick users. The core customer group consists mainly of consumers aged 25 to 35 with strong purchasing power who are concentrated in higher-tier cities. The report also states that more than 80% of Ultra-Translucent Stick buyers were purchasing the Comfy brand for the first time. New customers account for approximately 60% to 70% of Collagen Stick buyers, while new customers account for approximately 50% at both the Collgene and Comfy brand levels. The company believes the Collagen Stick's long-term addressable market could reach RMB2 billion. These figures support Morgan Stanley's judgment that the key new products still have room to expand and are not materially cannibalizing one another, but are instead introducing different new customer groups to the brands. The product pipeline provides a clear timetable for future growth. A Collagen Stick extension product is expected to launch between September and October 2026 to complement existing use cases. New products in the Order series containing rare ginsenosides are expected to launch between October and November, with their revenue contribution expected to become more meaningful in 2027. An Ultra-Translucent Stick extension product is planned for launch during Double 11, while Collagen Stick 3.0 is expected to launch in the first half of 2027. Collgene's revenue declined in the first half of 2026, although its online channels continued to grow. Future new products will mainly be launched through online and DTC channels. The company expects Collgene's 2026 revenue to exceed RMB1 billion and plans a major brand repositioning in the first half of 2027, positioning it around regenerative aesthetics spanning medical aesthetics and skincare. The medical aesthetics business is viewed as a potential second growth engine. The first new product has been on the market for approximately two months and has entered approximately 300 institutions, with positive initial efficacy feedback. The second product is expected to launch between October and November 2026, while the full-year RMB100 million target remains unchanged. In addition to the four products in its current pipeline, the company is researching other materials and efficacy profiles, potentially using both internal R&D and M&A, and is exploring overseas opportunities for its medical aesthetics business. Morgan Stanley believes the company's ability to combine biotechnology with consumer operations constitutes a differentiated advantage, helping it continuously launch products and maintain high margins. Its integrated positioning across functional skincare, medical devices, and medical aesthetics is not yet fully priced in. Regarding operating cadence, the extended 6.18 promotional period in 2026 made the pull-forward effect on demand more pronounced. The company expects sales growth to improve sequentially in the third quarter of 2026 and accelerate further in the fourth quarter. Traffic costs increased year over year across all platforms, with the online selling expense ratio at approximately 40% to 50%. Douyin was the highest, followed by Tmall, while JD.com was the lowest. The company is mitigating the pressure by reducing the share of influencer livestreaming and top KOLs, spreading partnerships from major promotional events into regular sales periods, and developing channels such as Xiaohongshu. It is also seeking to stabilize pricing. Many coupons are funded by the platforms and do not affect its gross margin, while only a small proportion of consumers can obtain extremely low prices by stacking coupons. Product return rates increased year over year, but management believes this was broadly consistent with industry trends. The overseas business is pursuing a localized expansion strategy. The company has entered offline channels in Southeast Asia and is increasing local marketing investment and online penetration. Japan and South Korea will be the next-stage markets. In North America, the company has entered online channels in the United States and Canada and plans to explore the Middle East in the future. Given the lower average transaction value in Southeast Asia, the company is considering smaller package sizes and locally customized products, along with partnerships with local KOLs. Regarding capital allocation, capital expenditure is expected to remain at several hundred million renminbi over the next few years, primarily for factories producing medical aesthetics injectables and health products. The dividend payout ratio is expected to remain at 60% or above. Based on first-half trends, Morgan Stanley broadly maintains its 2026 revenue forecast but lowers its 2027 and 2028 revenue forecasts by 3% and 6%, respectively, mainly reflecting lower online-channel revenue. The report now forecasts revenue growth of 10%, 13%, and 13% for 2026 through 2028, respectively. Changes in the product mix led to reductions of 0.5, 0.5, and 0.7 percentage points in the gross-margin assumptions for 2026 through 2028, respectively, with the latest forecasts at 79.3%, 79.2%, and 79.1%. Given increased brand investment, the operating expense ratio assumptions for 2026 and 2027 were raised by 0.7 and 0.1 percentage points, respectively, with the latest forecasts at 46.0%, 45.6%, and 45.5%. Meanwhile, higher-than-previously-assumed government grants and interest income in the first half prompted a 3% increase in the 2026 earnings forecast. The 2027 and 2028 earnings forecasts were lowered by 1% and 3%, respectively. Net profit margins for the three years are expected to be 32.2%, 31.5%, and 31.3%, with net profit growth of 2%, 11%, and 12%, respectively. Regarding valuation, the base-case target price remains HK$43.00, corresponding to 21 times expected 2026 P/E and a PEG ratio of 1.8 times based on expected EPS CAGR from 2026 to 2028. The report acknowledges that a 21 times P/E may appear high relative to the modest earnings growth expected in 2026, but argues that 2026 earnings do not represent a steady-state level. The recovery in sales and profit beginning in the second half of 2026, together with the company's differentiated biotechnology capabilities, can support the valuation. The bull case assumes expected 2026 EPS is 2% above the base case and applies a 27 times P/E, producing a value of HK$59.00. The bear case assumes EPS is 9% lower and applies a 13 times P/E, producing a value of HK$24.00. The base case forecasts sales and earnings CAGRs of 13% and 12%, respectively, from 2026 to 2028; the bull case forecasts 22% and 22%, respectively, while the bear case forecasts 9% and 5%, respectively.

Analysis framework

The report first uses first-half 2026 sales, operating profit, and share-price reactions to assess whether the recovery is genuine, and then examines the quality of growth using the channel mix, new-customer ratios, product sales progress, and management roadshow information. It subsequently evaluates future drivers across the new-product pipeline, medical aesthetics business, expense structure, sales cadence, overseas expansion, and capital allocation, adjusting its 2026 through 2028 forecasts for revenue, gross margin, expense ratios, and earnings accordingly. Finally, it establishes a base-case valuation using expected 2026 P/E and PEG and presents bull, base, and bear cases to show how changes in earnings assumptions affect valuation.

Methodology notes

• Valuation methodologyP/E and PEG valuation

  Expected 2026 P/E and PEG valuation

  The report derives its HK$43.00 base-case target price using 21 times expected 2026 P/E and calculates a PEG ratio of 1.8 times based on expected EPS CAGR from 2026 to 2028, illustrating how growth potential during the recovery stage supports the valuation.

• Valuation methodology

  Bull-, base-, and bear-case valuations

  The report varies expected 2026 EPS and the applicable P/E multiple: the bull case assumes EPS 2% above the base case and applies 27 times P/E, the base case applies 21 times, and the bear case assumes EPS 9% below the base case and applies 13 times, producing values of HK$59.00, HK$43.00, and HK$24.00, respectively.

• Corporate fundamentals and financial framework

  Morgan Stanley ModelWare forecasting framework

  The report uses Morgan Stanley ModelWare to organize revenue, gross margin, operating expenses, profit, cash flow, and valuation forecasts and updates its key assumptions for 2026 through 2028 based on actual first-half 2026 performance.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Giant Biogene Holding Co., Ltd. (2367.HK)

  The report names it a Top Pick and assigns it an Overweight rating, believing the business began to recover in the first half of 2026 and that sales and earnings could both grow by more than 30% year over year in the second half of 2026.

  Strengths

  Integration of biotechnology and consumer operations, a strong recombinant collagen technology foundation, new-product customer-acquisition capabilities, improving self-operated e-commerce, high gross margins, and the potential for medical aesthetics to become a second growth engine.

  Weaknesses

  Brand recovery and new-product promotion still require substantial investment, the online selling expense ratio is approximately 40% to 50%, and 2026 margins and earnings growth have not yet returned to steady-state levels.

  Comparison

  The report believes the company's model of combining biotechnology capabilities with consumer operations constitutes a strong comparative advantage, and its integrated positioning across functional skincare, medical devices, and medical aesthetics is not yet fully priced in.

  Risks

  Operating margins declining faster than expected, delays in approvals for new medical aesthetics products, weakening growth momentum in recombinant collagen products, and intensifying industry competition amid a weak macroeconomic environment.

Key data

• First-half 2026 sales and operating profitApproximately 20% sequential growthThe report views this as evidence of a V-shaped recovery.
• Second-half 2026 sales and earnings growthBoth above 30% year over yearMorgan Stanley's forecast based on improvements in the brand, product pipeline, and self-operated capabilities.
• Influencer livestreaming share of e-commerce salesApproximately 30%The level in the first half of 2026, versus more than 50% in the first half of 2025.
• Changes in self-operated and influencer livestreaming salesSelf-operated sales increased by more than 30%; influencer livestreaming sales declined by more than 40%Morgan Stanley's estimate for the first half of 2026.
• Ultra-Translucent Stick launch performanceRMB30 million in GMV within 7 days; RMB100 million in GMV within 100 daysBoth figures were disclosed through self-operated channel data or product launch progress.
• Ultra-Translucent Stick revenue and long-term scale targetsRMB200 million in 2026 revenue; RMB1 billion over the medium to long termThe company's target and assessment of potential scale.
• Collagen Stick new-customer share and long-term marketApproximately 60% to 70% new customers; RMB2 billion long-term marketIndicates substantial room for customer acquisition and expansion.
• Medical aesthetics new-product coverageApproximately 300 institutionsCoverage approximately two months after the first new product was launched.
• Full-year medical aesthetics business targetRMB100 millionThe company maintains its full-year 2026 target.
• 2026 through 2028 revenue growth forecasts10%, 13%, 13%The 2027 and 2028 revenue forecasts were lowered by 3% and 6%, respectively.
• 2026 through 2028 net profit growth forecasts2%, 11%, 12%The 2026 earnings forecast was raised by 3%, while the 2027 and 2028 forecasts were lowered by 1% and 3%, respectively.
• 2026 through 2028 gross-margin forecasts79.3%, 79.2%, 79.1%Due to changes in the product mix, the assumptions were lowered by 0.5, 0.5, and 0.7 percentage points, respectively.
• 2026 through 2028 net profit margin forecasts32.2%, 31.5%, 31.3%Reflects the latest assumptions for revenue, gross margin, expenses, and non-operating income.
• Target price and base-case valuationHK$43.00; 21 times expected 2026 P/EBoth the target price and target P/E multiple remain unchanged, corresponding to a PEG ratio of 1.8 times.
• Bull- and bear-case valuesHK$59.00; HK$24.00Based on 27 times and 13 times expected 2026 P/E, respectively.
• Dividend payout ratio60% or aboveManagement's indication regarding future capital returns.

Impact & implications

The report believes Giant Biogene's recovery is not driven solely by major promotional events or top influencers, but is founded on brand recovery, growth in self-operated sales, new-customer acquisition, and a sustained supply of new products. In the short term, brand and channel investment will continue to pressure margins, but the improving expense structure and accelerating sales in the second half of 2026 are expected to drive a sequential earnings recovery. Medium-term growth will also depend on the medical aesthetics business, Collgene's repositioning, localized overseas expansion, and product approval progress.

Risks

• Operating margins may decline faster than expected, particularly if new products have lower margins or selling expenses remain elevated.
• Approvals for new medical aesthetics products may be delayed, affecting the product launch schedule and the development of the second growth engine.
• Recombinant collagen skincare products may lose growth momentum.
• Industry competition may intensify in a weak macroeconomic environment, causing sales and earnings growth to fall below expectations.

What to watch

• Monitor whether sales growth improves sequentially in the third quarter of 2026 and accelerates further in the fourth quarter.
• Monitor whether brand expenses decline year over year in the second half, as well as changes in e-commerce traffic expenses and the online selling expense ratio.
• Monitor self-operated channel growth after the decline in influencer livestreaming's share and the effectiveness of expense management during Double 11.
• Monitor the launch progress of the Collagen Stick extension product, new products in the Order series, the Ultra-Translucent Stick extension product, and Collagen Stick 3.0.
• Monitor whether the second medical aesthetics product launches between October and November 2026 and whether the full-year RMB100 million target is achieved.
• Monitor whether Collgene's 2026 revenue exceeds RMB1 billion and the progress of its brand repositioning in the first half of 2027.
• Monitor localization in Southeast Asia, expansion into Japan and South Korea, and execution progress in North American online channels.