Chinese Electric Toothbrush Brand Soocas Re-IPO

Shenzhen Soocas Technology Limited Company(hereinafter referred to as "Soocas") has updated its prospectus to continue the process of listing on the Second-board Market with China Merchants Securities as the sponsor.

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Founded in 2015, Soocas entered the personal health care market with electric toothbrushes and later expanded its product categories to beard care and hair care. At present, Soocas focuses on the head care scenario and formed three product categories of oral care, beard care, and hair care. Its products are divided into private brand products and Xiaomi custom home brand products. Its brands include its main private brands "Soocas" "AIRFLY "and "Pinjing".

The main business revenue of Soocas in the term of product category mainly includes oral care products, which accounted for 61.71%, 59.2%, 59.31%, and 58.12% of revenue in the reporting period (from 2019 to 2021) respectively. This category is the main source of revenue. Among them, the main product electric toothbrush sales from Xiaomi's brand accounted for 59.86%, 53.74%, and 45.85%, respectively.

According to CHAILEEDO observation, the IPO of Soocas was accepted by the Shenzhen Stock Exchange in November 2021, and in March 2022, the status of Soocas IPO in the Second-board Market was changed to "suspended".

In the prospectus, Soocas Technology said that the amount and proportion of affiliated sales in the reporting period is relatively high, and if the Xiaomi Group's future purchases from it drop significantly, its business and operating results will be adversely affected.

It is reported that Soocas is one of the Xiaomi ecological chain enterprises focusing on personal care and small home appliances, Xiaomi Group is the company's largest customer in the reporting period. The company and Xiaomi Group-related sales amounted to $94.03 million, $124.4 million, and $156.3 million, accounting for 61.31%, 60.60%, and 55.81% of the current operating income, respectively. The amount and proportion of related sales in the reporting period are relatively high.

In recent years, Soocas has quickly become the trendy brand among influencers in the electric toothbrush category. Same as most trendy small appliances, Soocas has highlighted the drawbacks of marketing rather than R&D.

During the reporting period, Soocas Technology, the company's sales expenses were $20.17 million, $39.09 million, and $65.94 million, respectively, and the sales expense ratio was 13.15%, 19.04%, and 23.54%, respectively, and the sales expense ratio increased more rapidly.

Among them, advertising and marketing expenses became the main part of selling expenses. During this period, the amount of advertising and marketing expenses of Soocas Technology were $9.9 million, and $27.8 million, and $48.8 million, accounting for 49.11%, 71.1%, and 74.03% of the operating revenue respectively.

The prospectus shows that Soocas creates new marketing through various forms, which is an important reason for the year-on-year increase in the amount of advertising and marketing expenses. On marketing channels, Soocas mainly reaches different consumer groups through in-station promotion tools of Tmall and other platforms and online new media promotion tools such as TikTok, Xiaohongshu, WeChat, Weibo, etc., and creates new marketing in various forms including a live broadcast by influencers, and KOLs.

In this regard, Soocas explained that, along with the diversification of online marketing channels and forms, brand awareness has become a key element for the company to participate in market competition. Increased investment in marketing is an inevitable requirement to enhance the visibility of its own brand and expand its business scale, and how to define, and communicate the brand connotation and gain consumer recognition has become the key to performance growth.

However, from 2019 to 2021, the investment in R&D of Soocas is only about 1/6 of the sales expense, and the R&D expense ratio never exceeds 5%, and the R&D investment from 2019 to 2021 is 4.88%, 3.35%, and 3.55% respectively.

And the perennial low R&D expense ratio may have a non-negligible impact on product quality. It was found that in the Heimao complaint platform, the quality of the product complaints about the Soocas product problems frequently, including but not limited to "electric toothbrush charging fire", "hair dryer after the warranty is bad", "water floss false marketing "and so on.

Under the consumer upgrade, small personal care appliances are constantly facing more diversified needs of consumers, and need to accurately judge the market trend, and grasp the trend of consumer demand promptly. Based on this constantly launching product with new shapes, new functions and new experiences, Soocas should meet the market demand in order to consolidate its competitive advantages and market position.

In the prospectus, Soocas' stated that if the key technologies are not broken through during the research and development process, the performance indicators do not meet the expectations, the trend of market demand is misjudged, or the market demand changes significantly at that time, or the competitor with similar functions is launched first, it will lead to the new product market acceptance is not as expected and the initial investment is difficult to be recovered, which will have an adverse impact on the performance and market competitiveness.