Cathay Securities: Optimistic about new channels and new demand driving the functional health products industry, bringing opportunities for product innovation

According to the Zhitong Finance APP, Guotai Junan Securities released a research report stating that the market size of China's nutrition and health sector will reach 399.8 billion yuan in 2024, a year-on-year increase of 3%. Compared to developed countries, there is still room for improvement in the future. The firm believes that the rise of new channels will bring in incremental customer groups, which is expected to catalyze new demand for the efficacy of health products and accelerate the evolution and transformation of health products towards efficacy. They are optimistic about brands that excel in product innovation and strengthen operations. Key points from Guotai Junan Securities are as follows: The trillion-yuan health product market still has growth potential. According to Euromonitor data, the market size of China's nutrition and health sector will reach 399.8 billion yuan in 2024, a year-on-year increase of 3%. Among them, the market sizes for OTC, sports nutrition, vitamins and dietary supplements (VDS), and weight management are 144.1 billion, 6.3 billion, 232.3 billion, and 17.2 billion yuan, with year-on-year growth rates of +1%, +7%, +4%, and -1%, respectively. In comparison, the per capita consumption of sports nutrition, VDS, and weight management in China in 2024 will be 1, 2.3, and 2 USD, respectively, indicating room for improvement compared to developed countries, where the per capita consumption of VDS is about 1/3, 1/5, and 1/5 of that in Japan, South Korea, and the United States. Additionally, the competitive landscape of the health product industry is fragmented, with the CR3 for VDS market companies in China being 22% in 2024, and the top three companies, BYHEALTH, Amway, and H&H, each exceeding 10 billion yuan in retail sales. In the segmented categories, fish oil and coenzyme Q10 are growing rapidly, while probiotics and oral beauty products have large capacities, and basic nutrients are highly homogenized. According to Euromonitor data, 1) Fish oil: The market size will reach 5.6 billion yuan in 2024, with a CAGR of 16% from 2020 to 2024, driven by young consumers, anti-inflammatory needs, and new beauty scenarios. 2) Coenzyme Q10: The market size will reach 4.1 billion yuan in 2024, with a CAGR of 45% from 2020 to 2024, driven by increased post-pandemic heart health needs and women's care. 3) Probiotics: The market size will reach 13.8 billion yuan in 2024, with a CAGR of 21% from 2020 to 2024, focusing on regulating gut health and extending to weight management. 4) Oral beauty ingredients: Collagen is in high demand, and new anti-aging ingredients such as ergothioneine, NR, and PQQ are growing rapidly. Raw materials and formulations are becoming the driving forces for the development of the oral beauty market. The firm believes that brands can achieve product differentiation through ingredient innovation and combinations. 5) Basic nutrients: The market sizes for vitamins, minerals, and protein will reach 32.9 billion, 27.1 billion, and 11.6 billion yuan in 2024, with year-on-year growth rates of 3%, 5%, and 1%, respectively. Optimistic about new channels and new demand driving the functionalization of the health product industry, bringing opportunities for product innovation. In 2024, the GMV of health products on Douyin is expected to increase by 44% year-on-year. The firm believes that the high gross profit margins and heavy marketing of health products, along with the rise of Douyin as a new channel, will attract a younger incremental customer base, creating opportunities for new brands and new categories to emerge. In line with functional skincare, the industry is gradually experiencing new customer education through new channels and new demands from ingredient enthusiasts. Cross-border e-commerce and the supply side of synthetic biology are facilitating the accelerated evolution of health products towards efficacy. With the emergence of trending new ingredients and new categories, brands with product innovation capabilities are expected to seize new opportunities. Risk Warning: Changes in cross-border health product regulations, intensified competition, and new products performing below expectations