China Cosmetic Surgery:Takeaways from cosmetic surgery trip in Seoul/Beijing/Shanghai

　　We hosted a three-day cosmetic surgery trip in Seoul, Beijing and Shanghai last weekand visited six Korean and Chinese cosmetic surgery companies and various industrypractitioners. Both markets are seeing faster growth of injections than surgical proceduresgiven their convenience and safety. Our takeaways addressed the following questionswhich investors are most concerned about:How much further can filler price go down in China? We believe Korean peers havedrawn a line for Chinese players. In Korea, the ex-factory price and retail price areUSD40-50 and USD100 for both filler and toxin. They generally add 20% premium to theex-factory price for overseas markets. According to private hospital surgeons, the hospitalpurchase prices for Restylane/YVOIRE/domestic brands are RMB1,500-2,000+/400-800/600-1,000, respectively. We believe the price cut pressure on the retail price couldbe larger than the ex-factory price. The average price for filler is RMB3,000 according toour channel checks vs. cRMB600 in Korea, whilst the ex-factory price in China isRMB400-1,000 (except for Restylane) vs. RMB250-300 in Korea.

　　Shall we expect more competition? More competition is inevitable. Among the listedcompanies, Medy-Tox (086900 KS, KRW443,000, Buy), Hugel (145020 KS,KRW338,700, Buy) and Humedix (200670 KS, KRW54,900, Buy, all three covered byYeon Lee) are all pushing approvals of their products in China, as Korea is turning into arelatively mature market. Bloomage and Haohai are both planning to launch newgenerations of filler in China.

　　The next trend in cosmetic surgery? There is no perfect substitute for filler, noteven body fat which is costly and takes much longer to recover. Filler with lidocainewill likely become the mainstream in the future. Skin management based onequipment, i.e. hydro-lifting, is growing robustly, given the extremely high recurrencerate (80-90%) among customers.

　　Is there brand loyalty? Actually, there is. Safety beyond everything is the first priorityfor surgeons. They tend to recommend brands with a longer track record and whichthey are familiar with. They normally would not switch brands if the customer hasalready done HA filler as product incompatibility could cause allergy and redness.

　　What should investors buy? We reiterate Buy on Bloomage and Haohai for theirattractive valuation and first-mover advantage in China. They are the only two domesticplayers with meaningful market shares in the pure HA filler market. Both are trading at18x 2016e EPS, implying a PEG below 1, vs the Korean players at 38x 2016e EPS.