Giant Biogene improved HoH in 1H26 and maintained full-year guidance; BofA cuts target price to HK$35.9 but reiterates Buy

Overview

The report assesses Giant Biogene's 1H26 results, 2026 operating guidance, new product progress, and valuation changes. First-half performance was weighed down by a high base, product mix changes, and new product promotional expenses, but improved HoH from the second half. Management maintained its full-year guidance, prompting BofA to retain its 2026 revenue forecast and maintain its Buy rating based on new product progress, while lowering subsequent forecasts and the target price due to expense ratios and competitive pressure.

Core views

1H26 operating performance was under pressure YoY but improved significantly from 2H25. The company recorded revenue of RMB2.9bn, down 6.3% YoY and up 21.3% HoH. Collgene and Comfy revenues were RMB2.3bn and RMB498.9mn, respectively, down 7.7% and 0.8% YoY. Gross profit declined 8.8% YoY to RMB2.3bn, while gross margin fell from 81.7% in 1H25 to 79.5%, mainly due to product mix changes. Net profit attributable to shareholders was RMB940mn, down 20.5% YoY but up 28.2% HoH, indicating that operating performance had recovered from the previous half-year level. The larger decline in profit than in revenue was primarily attributable to increased selling expenses for new product promotion and proprietary channel development. Selling expenses rose 19.7% YoY to RMB1.3bn in 1H26, with the selling expense ratio increasing from 34.0% in 1H25 to 43.4%. Investment was mainly directed toward new products such as the Ultra-Permeable Collagen Glow Stick and the 753 collagen injectable product, as well as proprietary channel development. Management still expects the full-year 2026 selling expense ratio to rise by mid-single-digit percentage points YoY and stated that most new product promotional spending had already occurred in 1H26, meaning that the first-half expense ratio should not simply be extrapolated to the full year. Management maintained its guidance for approximately 10% YoY revenue growth and positive net profit growth in 2026. New products are an important driver for achieving this guidance: the company's first injectable medical aesthetics product was launched in June 2026, and a second product is planned for launch in October or November 2026. Cumulative GMV of the Ultra-Permeable Collagen Glow Stick reached RMB100mn within 100 days of launch, and management maintained its 2026 sales guidance of RMB200mn. In terms of channels, the company continued to optimize its online mix. In 1H26, sales contributed by third-party influencer livestreaming had declined to approximately 30% of total online sales, reflecting the company's efforts to reduce reliance on such channels and develop proprietary channels. Based on the 1H26 performance and unchanged full-year guidance, BofA maintained its 2026E revenue forecast but slightly raised its selling expense ratio forecasts from 2026E onward to reflect continued investment in new product promotion. Considering intensifying industry competition, the 2027E and 2028E revenue forecasts were lowered by 1.0% and 2.2%, respectively, while the 2026E, 2027E, and 2028E net profit forecasts were lowered by 1.0%, 1.9%, and 2.9%, respectively. Adjusted 2026–2028 sales forecasts are RMB6.131bn, RMB7.029bn, and RMB8.000bn, respectively, while adjusted net profit forecasts are RMB1.971bn, RMB2.224bn, and RMB2.526bn. EPS forecasts were reduced from RMB1.88, RMB2.14, and RMB2.46 to RMB1.86, RMB2.10, and RMB2.38, respectively. The corresponding forecast P/E ratios are 12.98x, 11.51x, and 10.13x. The earnings forecast reductions lowered the DCF-based target price from HK$39.6 to HK$35.9. The model assumes a 95% equity asset ratio, a 4.0% risk-free rate, a 7.0% market risk premium, a 15% tax rate, and a beta of 1.3, resulting in a 13.1% cost of equity and a 12.6% WACC. The terminal growth rate is 3.5%, in line with medical aesthetics peers. BofA selected DCF to incorporate the future contribution of the medical aesthetics business into the company's valuation. Despite the target price cut, the report maintains its Buy rating based on product launches proceeding according to plan, steady sales ramp-up of new products, and the company's growth potential in recombinant collagen, its product portfolio, medical aesthetics pipeline, and multi-channel sales. The company's business is primarily focused on China's domestic market, and the report also believes it has limited tariff exposure.

Analysis framework

The report first analyzes changes in 1H26 revenue, brand performance, gross margin, selling expense ratio, and net profit using YoY and HoH data. It then compares these figures with management's full-year guidance to assess whether new product launches, sales ramp-up, and online channel adjustments can support growth. Next, it revises the 2026–2028 financial forecasts based on expense investment and industry competition. Finally, it revalues the target price using a DCF model that incorporates the long-term contribution of the medical aesthetics business and confirms the rating accordingly.

Methodology notes

• Valuation methodologyDCF discounted cash flow

  DCF valuation

  The report discounts the company's future cash flows to present value using the cost of capital and incorporates a terminal growth assumption. This method is used to capture the potential future contribution of the medical aesthetics business, resulting in a target price of HK$35.9.

• Quantitative/Factor/Portfolio TheoryCAPM capital asset pricing model

  Estimating the cost of equity using the risk-free rate, market risk premium, and beta

  The report uses a 4.0% risk-free rate, a 7.0% market risk premium, and a beta of 1.3 to calculate a 13.1% cost of equity, further deriving a 12.6% WACC as the basis for the DCF discount rate.

Asset mapping & comparison

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

• Giant Biogene (2367.HK)

  The core company covered by the report, whose business performance depends on recombinant collagen products, new product sales ramp-up, the medical aesthetics pipeline, and channel mix optimization.

  Strengths

  Its domestic China market presence limits tariff exposure; it is well positioned in the recombinant collagen industry; it has a relatively comprehensive portfolio spanning functional skincare products, medical devices, and medical aesthetics; and its new product pipeline and online channels offer growth potential.

  Weaknesses

  1H26 revenue and net profit declined YoY, product mix changes reduced gross margin, and new product promotion and proprietary channel development significantly increased the selling expense ratio.

  Comparison

  The DCF terminal growth rate of 3.5% is in line with medical aesthetics peers.

  Risks

  Product safety issues or reputational damage, slower-than-expected clinical trial progress, changes in consumer preferences, intensifying competition, and regulatory changes.

Key data

• 1H26 revenueRMB2.9bnDown 6.3% YoY and up 21.3% HoH
• 1H26 net profit attributable to shareholdersRMB940mnDown 20.5% YoY and up 28.2% HoH
• 1H26 gross margin79.5%81.7% in 1H25, mainly affected by product mix changes
• 1H26 selling expense ratio43.4%34.0% in 1H25; new product promotion and proprietary channel development drove expenses higher
• Collgene revenueRMB2.3bnDown 7.7% YoY in 1H26
• Comfy revenueRMB498.9mnDown 0.8% YoY in 1H26
• 2026 revenue guidanceApproximately 10% YoY growthManagement maintained its original guidance
• 2026 net profit guidancePositive growthManagement maintained its original guidance
• Cumulative GMV of the Ultra-Permeable Collagen Glow StickRMB100mnReached within 100 days of launch; 2026 sales guidance maintained at RMB200mn
• Share of third-party influencer livestreamingApproximately 30%Share of total online sales in 1H26
• 2026–2028E adjusted net profitRMB1,971mn / RMB2,224mn / RMB2,526mnForecasts lowered by 1.0%, 1.9%, and 2.9%, respectively
• 2026–2028E EPSRMB1.86 / RMB2.10 / RMB2.38Previously RMB1.88, RMB2.14, and RMB2.46, respectively
• DCF-based target priceHK$35.9Reduced from HK$39.6
• WACC12.6%Discount rate in the DCF model
• Terminal growth rate3.5%In line with medical aesthetics peers

Impact & implications

The report believes the YoY decline in 1H26 has not altered the company's 2026 growth trajectory because new product promotional spending was primarily concentrated in the first half, while product launches and sales ramp-up remain on schedule. New medical aesthetics products and the Ultra-Permeable Collagen Glow Stick provide new sources of growth, but continued promotional investment and intensifying industry competition have reduced medium-term earnings forecasts and valuation, resulting in a lower target price while the Buy rating remains unchanged.

Risks

• Product safety issues or reputational damage could affect sales and brand value.
• Clinical trial progress may be slower than expected, delaying the commercialization of new products.
• Changes in consumer preferences could weaken demand for existing products.
• Intensifying industry competition could reduce revenue growth, margins, and valuation.
• Regulatory changes could affect product approvals, launches, or operations.

What to watch

• Monitor whether the company can achieve its 2026 guidance of approximately 10% YoY revenue growth and positive net profit growth.
• Monitor whether the second injectable medical aesthetics product can be launched as scheduled in October or November 2026.
• Monitor whether 2026 sales of the Ultra-Permeable Collagen Glow Stick can reach RMB200mn.
• After most promotional spending was incurred in the first half, monitor whether the full-year selling expense ratio can meet guidance for a mid-single-digit percentage-point increase YoY.
• Monitor the impact of the declining share of third-party influencer livestreaming and proprietary channel development on sales efficiency and the expense ratio.