Recently, Park Ha Biological Technology Co., Ltd. (referred to as “Park Ha Bio” hereafter) publicly disclosed its prospectus with the U.S. Securities and Exchange Commission (SEC), with the stock code PHH, intending to list on the U.S. NASDAQ through an IPO. The prospectus indicates that Park Ha Bio plans to issue 1.2 million shares at a price of $5-7 per share (approximately 35-49 Chinese Yuan).
It is understood that Park Ha Bio initially submitted its documents to the U.S. SEC in secret on December 29, 2023. On June 1, 2024, it obtained approval for overseas listing through filing with the overseas issuance and listing record of the China Securities Regulatory Commission’s International Cooperation Department (Guohe Letter [2024] No. 1159). If this IPO is successful, Park Ha Bio will become the first company of single-brand store specializing in skin management on SEC.
Park Ha Bio’s franchising contributed over half of its performance.
Public information reveals that Park Ha Bio was established in October 2022, headquartered in Wuxi, Jiangsu Province. Its main business includes proprietary skincare brands, direct sales of skincare products, and franchising services. Among these, the brand “Park Ha” under Park Ha Bio was founded in 2016 and opened its first store in 2017, dedicated to providing solutions for various skin issues to consumers.
Regarding the equity structure, according to the prospectus, before the listing of Park Ha Bio, the shareholding structure included Zhang Xiaoqiu, the founder, chairman, and CEO of Park Ha Bio, holding 76.2% through Xiaoqiu Holding Ltd. Wang Li, Zhu Xiaoyan, and Liu Guozhen collectively held 10.0% through Changxin International Limited Partnership.
CHAILEEDO compiled the financial data of Park Ha Bio for the fiscal years 2022 to 2024 for the first six months (up to April 30, 2024). During this reporting period, the company’s revenues were $1.9194 million, $2.4591 million, $0.8529 million, and net profits were $0.1913 million, $0.852 million, $0.0489 million, respectively.
From the above data, it is evident that in the first six months of the 2024 fiscal year, Park Ha Bio experienced a significant decline in both revenue and net profit. Park Ha Bio attributed this mainly to a decrease in franchising expenses.
In terms of business segments, from the fiscal years 2022 to 2024 for the first six months (up to April 30, 2024), the product sales of Park Ha Bio were $0.9819 million, $0.6481 million, $0.301 million, representing 51%, 26%, and 35% respectively. Franchising fee income was $0.9375 million, $1.811 million, $0.5519 million, accounting for 49%, 74%, and 65% respectively. It is evident that franchising has been the primary source of income for Park Ha Bio over the past year and a half.
In the prospectus, Park Ha Bio noted that the fundraising target for this IPO is between $6 million and $8.4 million, with the funds primarily intended for advancing and expanding its operations in China. This includes research and development activities of its Chinese subsidiary, new product development, and enhancing production capacity.
Park Ha Bio has only 3 research and development personnel, with 43 franchise stores.
According to the prospectus, Park Ha Bio conducts its business through three domestic operating entities: Jiangsu Park Ha Bio Technology Co., Ltd. (“Jiangsu Park Ha”), Wuxi Xinzhan Enterprise Management Consulting Co., Ltd., and Shanghai Park Ha Industrial Development Co., Ltd. (“Shanghai Park Ha”).
Jiangsu Park Ha serves as the company’s research and development hub, focusing on the research and optimization of skincare products for sensitive skin to ensure that franchisees receive innovative and effective products.
In addition to relying on its own research center, Jiangsu Park Ha also collaborates with Jiangnan University’s research institute and laboratory to further enhance its research and development capabilities. According to the prospectus, the company has signed a cooperation agreement with Jiangnan University to develop a protein microorganism activity monitoring system to drive new product development.
Although Jiangsu Park Ha has already paid half of the collaboration fees, this partnership has not yet produced any intellectual property. Jiangsu Park Ha stated that “the collaboration with Jiangnan University will expire on December 31, 2024, and there is currently no plan for renewal. Failure to renew the collaboration may impact the company’s research and development pipeline and could adversely affect the company’s product development capabilities, competitiveness, and reputation.”
In fact, Park Ha Bio’s investment in research and development is significantly insufficient. The prospectus shows that for the fiscal years 2022 to 2024 for the first six months (up to April 30, 2024), Park Ha Bio’s research and development expenses were $60,671, $30,881, and $20,083.
Explaining the significant decrease in research and development expenses for the fiscal year 2023, Park Ha Bio stated that this was mainly due to a reduction in wage expenditures resulting from a smaller research team and a decrease in expenses due to a reduced number of patent applications. According to the prospectus, for the fiscal years 2022 to 2024 for the first six months (up to April 30, 2024), the number of research and development personnel at Park Ha Bio was 1, 1, and 3, respectively.
Despite limited research and development investment, Jiangsu Park Ha has successfully developed a full range of skincare products under the “Park Ha” brand through close cooperation with biological laboratories and the supply chain system, covering a wide range of products from basic skin physical protection, exfoliation, lipid film repair to surface microecological balance, anti-aging, including 18 series and nearly 200 products.
Shanghai Park Ha is responsible for providing professional training to employees of franchisees. It is reported that Shanghai Park Ha provides monthly training for beauticians at each franchise store, including courses on skin physiology, Park Ha product theory, store operation skills, and conducts theoretical assessments of beauticians monthly.
As part of the value-added services for products, both Park Ha Bio’s directly operated stores and franchised stores provide a “light beauty experience,” which involves quick and free after-sales beauty services in-store. With professional training from Shanghai Park Ha, customers can undoubtedly enjoy a better service experience.
As of April 30, 2024, Park Ha Bio directly operates 2 stores in Jiangsu and has 43 franchise stores, with 41 franchisees operating under the name “Park Ha” and 2 franchisees using different brand names, “Geni” or “歌妮”, mainly located in first-tier, second-tier, and third-tier cities across China. Park Ha Bio also stated, “In the future, we will launch a new brand targeting male consumers of all ages.”
Of note, an article titled “Zhang Xiaoqiu – Founder of the ‘Park Ha’ Brand” published on the WeChat public account of the “Wuxi Hairdressing and Beauty Industry Association” in 2022 mentioned, “In the future, Park Ha plans to open 3,000 stores nationwide.” Contrasting this ambitious goal with Park Ha Bio’s current 40+ stores, there is still a long way to go.
Beauty chain store accelerates updating
As mentioned earlier, franchising constitutes the main source of revenue for Park Ha Bio. It is understood that franchising is a business model where the franchisor expands business, sells goods and services, and is also an opportunity for the franchisor to operate a company using a well-known brand, which is the most familiar form of authorized operation. In simple terms, franchising is a form of joining a chain business model.
In its prospectus, Park Ha Bio points out that it faces intense market competition, with major competitors including Fanwenhua, Dr. Plant, and Beauty Farm, which have longer operating histories and higher market shares. This may make it difficult for Park Ha Bio to enhance brand awareness and reputation, and face cost pressure from larger enterprises.
In terms of the number of stores, Park Ha Bio lags behind its competitors. According to public information, Fanwenhua has over 5,000 stores nationwide; Dr. Plant has nearly 4,500 specialty stores in countries and regions such as Japan and Hong Kong, with over 20 million members; and as of June 30, 2024, Beauty Farm has increased its total number of stores to 409.
Industry analysts believe that “for beauty chain stores to achieve long-term development, they must expand their scale and strengthen their capabilities, which requires acquiring higher-quality resources. Park Ha Bio’s listing this time is aimed at attracting more capital to broaden its business scope.”
Taking Beauty Farm as an example, continuous expansion has always been its core business strategy. Since its listing in January 2023, it has significantly accelerated its expansion pace. On one hand, in March of this year, it acquired 70% of the core assets of the industry’s second super beauty spa, Nairui’er, for 350 million yuan. On the other hand, absorbing poorly operated beauty shops that are closing for various reasons is also one of its important expansion methods. In July of this year, Shuixianzhimei, a skincare brand with six stores in Beijing, planned to end its operations, and Beauty Farm took over.
At the same time, Dr. Plant has also been accelerating its store expansion in recent years. According to data from the China Chain Operation Association, Dr. Plant’s chain store scale increased from 3,373 stores at the end of 2019 to 4,426 stores by the end of 2022, adding 1,053 stores in three years. In August of last year, Dr. Plant also initiated IPO counseling work and planned to conduct an initial public offering of shares on the A-share market.
However, in the expansion process of beauty chain stores, there are also many challenges, and some companies may even face the risk of bankruptcy. For instance, Aesthetic, which has repeatedly won the title of “China Top 100 Franchise Chains,” has now become rare in the market. Meanwhile, Beijing Weimeiguangda Daily Cosmetics Co., Ltd., associated with Aesthetic, declared bankruptcy on March 22nd this year due to insolvency, and related assets were auctioned off.
A senior industry expert familiar with capital operations once told CHAILEEDO, “The operating costs of beauty and body chain operations are relatively high, and when faced with economic downturns, consumer downgrades, and other situations, there is a risk of the capital chain breaking.”
Obviously, against the backdrop of the current economic downturn, beauty chain stores undoubtedly face numerous challenges. Only those brands with professional capabilities and a spirit of continuous innovation have the potential to break through in the fierce market competition and pave their own unique path of development. As one of them, the success of Park Ha Bio’s IPO remains to be seen.
