HAITONG INT'L: BEAUTYFARM MED (02373) acquires Shanghai Siyanli Industry, increasing the number of core city stores.

HAITONG INT'L released a research report stating that BEAUTYFARM MED (02373) announced the acquisition of 100% equity of Shanghai Siyanli Industry for a total consideration of 1.25 billion RMB. This move is a key step in its "internal growth + external acquisition" strategy. Siyanli was established in 2009, with an estimated revenue of about 850 million RMB in 2024, a net profit of about 81 million RMB, operating cash flow of about 240 million RMB, and cash and equivalents of about 360 million RMB. The main points of HAITONG INT'L are as follows: In terms of the transaction structure, this acquisition adopts a diversified approach of "cash + M&A loan + stock issuance." The cash consideration is approximately 840 million RMB, composed of 330 million RMB from internal cash of the group and 510 million RMB from bank financing; the stock consideration is approximately 410 million RMB, with the company issuing about 15.798 million shares to the seller at a price of HK$28.71 per share. After the completion of the transaction, the target company Siyanli will become an indirect wholly-owned subsidiary of Beauty Farm, and its performance will be integrated into the group's financial statements. Following the issuance of shares, the existing shareholders of the company will see their ownership diluted accordingly. Specifically, the shareholding percentage of the controlling shareholder group (including Li Yang, Li Fangyu, and other concerted action persons) / other public shareholders is expected to decrease from 3.07% / 3.21% as of the announcement date to 45.70% / 48.02% upon completion; while the counterparty SYL Holding will hold approximately 6.28% of the company's shares after completion, becoming a significant shareholder. The "cash + M&A loan + stock issuance" scheme fully considers Siyanli's own cash flow generation capacity as of the valuation date, it holds about 360 million RMB in cash and cash equivalents on its books, enough to cover the initial payment of 330 million RMB; meanwhile, Siyanli's annual operating cash flow net amount of about 240 million RMB can effectively support the repayment of M&A loans of 70 million RMB annually. It is worth noting that the seller MBK Partners also shows long-term cooperation sincerity, and the shares obtained through the exchange will be subject to a lock-up period of more than half a year, with the consideration shares being released in three batches on different dates (June 30, September 30, and December 31, 2026). The company stated that this acquisition significantly strengthens Beauty Farm's market share in the beauty industry, with a significant increase in the number of core city stores. Currently, the top three brands in the Chinese beauty service market are Beauty Farm, Naireer, and Siyanli. After this acquisition, Beauty Farm will consolidate the top three industry-leading brands of Beauty Farm, Naireer, and Siyanli. The company stated that this not only means that the store network will increase from the current 552 stores to 734 stores, but also signifies the substantial consolidation of the company's leading position in the high-end beauty service market in China. The Chinese beauty service market is huge, with the top 20 core cities accounting for approximately 40% of the market size. Within this 40% market size of the top 20 core cities, the four major cities of Beijing, Shanghai, Guangzhou, and Shenzhen account for about half (approximately 20% of the national market). The company believes that there is a high degree of synergy in the business layout networks of the group and Siyanli, with both parties generating over 90% of their revenue from stores in the top 20 core cities and over 60% of their revenue from stores in the four major cities. Following the acquisition of Siyanli by the group, the number of stores in the top 20 core cities will increase from 360 to 491 (an increase of 131), and the number of stores in Beijing, Shanghai, Guangzhou, and Shenzhen will increase from 206 to 266 (an increase of 60). The company stated that this acquisition will drive Beauty Farm to complete the integration of the top three brands, significantly enhancing its competitive advantage in the high-end beauty market. In terms of channel layout, the high-end beauty track and high-end commercial properties have become the "golden battlefield" for beauty brands to attract high-quality customers. After the merger, the group's coverage of high-end commercial properties in the top 20 core cities exceeds 42% (Beauty Farm and Naireer have entered 147 high-end commercial projects, while Siyanli covers 46). In terms of customer resources, the inclusion of Siyanli's 60,000 high-quality members will drive overall membership growth by 44%, surpassing the 200,000 mark for high-quality traffic entry points, laying the foundation for cross-selling. In terms of medical beauty business synergy, the integration of the two parties' medical beauty clinics will enhance the level of medical services, with a high degree of synergy in operational cities and store networks, Siyanli's 27 medical beauty clinics will join forces with the group's existing 19 medical beauty institutions to elevate the level of medical clinics through regional resource integration. On a business level, the current penetration rates of Beauty Farm and Siyanli are 28.7% and 18.8% respectively. The company believes that this merger can significantly increase the penetration rates of both parties in "dual medical," thereby effectively increasing the revenue from value-added services. The company stated that Siyanli's valuation level is highly attractive, and this acquisition is expected to replicate the successful integration path of Naireer. Siyanli's valuation is highly attractive, with a 14.8 times LTM P/E ratio (calculated by the company based on wind and unaudited data for 2024) that is not only lower than Beauty Farm's own 29.5 times, but also below the industry average of 23.3 times, providing a safety margin for investment. The company believes that the target company has excellent quality, with a 20-year operating history and 60,000 high-value customers, achieving revenue of 850 million RMB in the past twelve months, a net profit margin of 9.6%, and stable profitability; financially, the company's 350 million RMB in cash on its books can cover the initial payment of the acquisition, and its average annual operating cash flow of 240 million RMB is sufficient to support loan repayments. Furthermore, this acquisition is expected to replicate the successful integration path of Naireer. Data shows that Siyanli's current store revenue of approximately 6.3 million RMB has significant room for improvement compared to Beauty Farm's level of over 10 million RMB. In terms of efficiency improvement, after being acquired, Naireer's operating service profit margin jumped from 6.5% to 10.4%, confirming the effectiveness of the group's integration approach. The group will empower Siyanli in three dimensions: refined operations, digital transformation, and supply chain coordination, through the reuse of medical resources and the standardization of operations. The company believes that this acquisition will directly increase the group's profit, and based on past successful integration experience, the synergies released are expected to drive EPS growth even after considering dilution, achieving a win-win situation for performance growth and shareholder returns. The company expects to complete all transaction prerequisites in December this year and finalize the transaction in January 2026. Risk warning: Integration execution risk, regulatory and approval risk, consumer market volatility, financing risk.