SOOCAS' Impact on "China's First Electric Toothbrush Stock" Ended in Failure

Abstract: SOOCAS(Shenzhen)Technology Co., Ltd)terminated its IPO of The Second-Board Market. The company is mainly engaged in oral care, beard care, hair care, and other categories. In 2021, its operating revenue was $276 million and its net profit was $19 million.

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In November 2021, SOOCAS filed an application to list on the Second-Board Market. In March 2022, the status of SOOCAS GEM IPO was changed to "suspended", and in the evening of August 3, the official website of the Shenzhen Stock Exchange showed that SOOCAS GEM IPO was terminated and the company withdrew its order, which means that the queue was over 8 months, and SOOCAS failed to hit "Electric Toothbrush First Stock".

According to the prospectus, in 2015, SOOCAS entered the personal health care market with an electric toothbrush, and then expanded the product category to beard care and hair care field, of which its own brand "SOOCAS" mainly, also includes "AIRFLY" and "PINJING". At present, SOOCAS focuses on the scene of head care and formed three product categories of oral care, beard care, hair care, which divided into its own brand products and Xiaomi custom MIJIA brand products.

CHAILEEDO learned that, the main business income of SOOCAS is mainly oral care products by product category. Oral care products accounted for 61.71% of revenue in 2018, 59.2% in 2019, 59.31% in 2020 and 58.12% in the first half of 2021, which is the main source of revenue for the company. Xiaomi, its largest customer, supports half of SOOCAS's revenue. According to the prospectus, in 2018, 2019, 2020 and the first half of 2021, the related sales amount between SOOCAS and Xiaomi Group was US $58 million, US $93 million, US $123 million and US $76 million respectively, accounting for 73.52%, 61.31%, 60.6% and 56.4% of the current operating revenue respectively.

In this regard, SOOCAS confessed that the amount and proportion of affiliated sales during the reporting period were relatively high, and if Xiaomi Group's future purchases from it drop significantly, its business and operating results will be adversely affected. This leads to too much dependence on a single customer as an IPO company, and if a large customer has operational problems, it will directly affect SOOCAS.

In addition to heavy reliance on Xiaomi, heavy marketing rather than research and development is also a long-standing criticism of SOOCAS. According to SOOCAS's prospectus, SOOCAS's selling expenses rose from $6,436,900 to $27 million in the first half of 2018-2021, and the selling expense ratio climbed from 8.15% to 20.43% year by year. And among marketing expenses, advertising and marketing expenses are the highest percentage. The prospectus shows that from the 2018-2021 first half, the amount of advertising and marketing expenses of SOOCAS rose from $0.02 billion to $0.2 billion. In contrast, the ratio of operating income is 3.73%, 4.88%, 3.35%, and 3.56%, respectively, and the R&D expenses are less than one-fifth of the sales expenses in 2020.

Gradually, higher marketing expenses and its sales model are not unrelated, offline channels never seem to be its main battlefield. It is understood that SOOCAS product line direct sales mainly through the Tmall, Youpin, TikTok, Xiaohongshu(RED), Buy Together and other e-commerce platforms for external sales. The company also said that if the company continues to increase in the future Tmall, TikTok, Xiaohongshu and other online platforms advertising investment or increase offline marketing and promotional investment, or platform service rate increase, are likely to lead to an increase in the company's sales expense ratio.

At present, electric toothbrushes have entered the stage of product homogenization and fierce competition, except for the function, but it is difficult to have differentiated features. The rapid growth of SOOCAS is inseparable from the support of the giant. And SOOCAS, which was "grew up in the palm of Xiaomi's hand", can hardly avoid being carried forward. However, if SOOCAS wants to be recognized by market investors, it still depends on its own strength. The termination of this IPO also sounded an alarm for the future development of SOOCAS.